[channin19]

http://www.jdsupra.com/legalnews/cou...-a-loan-97947/

[Funder Mark]

not good at all for the industry.

[ADiamond]

Merchant Cash Advances Are Not Loans – Take the Online Course to Learn Why

[ridextreme]

the Judge didn't take the course

[Andy]

In my opinion, the takeaway here is the importance of correct contracts! And that Pearl's contract's were not adequate to distinguish the agreement as a purchase of receivables as opposed to a loan. Reading that it appeared that the court ruled against Pearl due to verbiage lacking as well as illegible small font. Had they had better contracts, the court would not have ruled against them.

[Sean Cash]

In my opinion, the takeaway here is the importance of correct contracts! And that Pearl's contract's were not adequate to distinguish the agreement as a purchase of receivables as opposed to a loan. Reading that it appeared that the court ruled against Pearl due to verbiage lacking as well as illegible small font. Had they had better contracts, the court would not have ruled against them.

"the Agreement provided for Court review is illegible," the judge said.

So a lot went off of the witness testimony and what the funder's attorney said, of which if you read through everything in this case, they didn't really know what they were talking about.

By the way this was the old pearl, not the new pearl.

[Sean Cash]

Merchant Cash Advances Are Not Loans – Take the Online Course to Learn Why

This is a great program to brush up on your understanding of MCA basics (loans vs purchases) or test your employees or ISOs. Because if you're working with someone in the chain (sales rep, ISO, underwriter, etc.) and they can't pass this or don't fully grasp this, well that could have far reaching consequences as we've just seen.

[NoBigDeal]

In my opinion, the takeaway here is the importance of correct contracts! And that Pearl's contract's were not adequate to distinguish the agreement as a purchase of receivables as opposed to a loan. Reading that it appeared that the court ruled against Pearl due to verbiage lacking as well as illegible small font. Had they had better contracts, the court would not have ruled against them.

Agreed

[staten]

"the Agreement provided for Court review is illegible," the judge said.

So a lot went off of the witness testimony and what the funder's attorney said, of which if you read through everything in this case, they didn't really know what they were talking about.

By the way this was the old pearl, not the new pearl.

Are any Pearl contracts enforcible?

[NoBigDeal]

Are any Pearl contracts enforcible?

Specifically Pearl or any contract in the MCA space?

[Sean Cash]

Are any Pearl contracts enforcible?

They probably are. The entirety of the contract itself was not really ruled on since it was illegible. Of course, everyone should speak with their contract lawyers and/or their litigators about this case for further clarity and real legal expertise. I'm not an attorney.

[joerusso85]

From what I understand this is what has been argued since MCA companies have laid out specific terms over a set period of time.

If you recall, it used to be a percentage of receivables, which was legit on paper because there is risk on both sides.

In this case the Judge looked at it like this.

1. You purchase receivables based on an ESTIMATED number.
2. Receivables are payed based on that gross. Set payment and set time period.
3. Revenue increases, seller pays same
4. Revenue revenue decreases seller pays same.
5. No sales, seller still has to pay.. BIG problem. This is now a term loan. PERIOD. If you purchase receivables and there are no receivables, risk is on you, but expect a payment.

This is now considered a loan. wait until someone challanges the reporting on a credit report.. 1k per violation.

This is the judges logic as far as I read.

[CreditGuy]

Wait until someone challanges the reporting on a credit report.. 1k per violation.

Most business credit agencies don't allow MCAs to report because they aren't loans, nor are they tradelines. Interesting to see if that changes in light of this ruling.

Personal credit bureaus only let you report after default and even then, depending on who is reporting, only show collection items and/or judgements. Consumer bureaus, for now, can't/won't report it as a derogatory tradeline on a personal bureau. For starters, the natural person is only a contingent guarantor not a comaker or applicant for joint credit under ECOA.

[joerusso85]

I would like to see more details of their contract. It seems the if the contract had a clause that in the event of closure the merchant wouldn't be personally responsible, the whole contract would have been legit.
Will be interesting to see how this effects other contracts.