Revenue Purchase Agreement | MCA Glossary

Definition

The legal contract that governs a merchant cash advance, formally documenting the purchase and sale of future business receivables rather than a loan obligation.

Explanation

A revenue purchase agreement (RPA) — sometimes also called a future receivables purchase agreement or a merchant agreement — is the legal document that establishes the MCA transaction. Rather than a promissory note (which evidences a debt), the RPA is structured as a purchase contract in which the funder buys a specified amount of the business's future receivables for an agreed purchase price paid upfront. The RPA defines the advance amount (the purchase price), the purchased amount (the total receivables sold), the holdback percentage, the payment mechanism, and all covenants and default provisions. It also typically includes representations and warranties from the business owner about the business's legal status, absence of other liens, and accuracy of financial information provided. The RPA's characterization of the transaction as a purchase rather than a loan is the legal foundation that has historically kept MCAs outside traditional lending regulations. Regulators and courts have generally respected this characterization, though as state disclosure laws evolve, the practical distinction between an RPA and a small business loan is narrowing in terms of borrower protections.

Example

The revenue purchase agreement for a $100,000 advance specifies: Purchase Price (advance amount): $100,000. Purchased Amount: $135,000. Remittance Rate: 14% of daily card sales. Estimated term: 9 months. The agreement also lists 12 default events, a personal guarantee clause, UCC lien authorization, and a prohibition on additional financing without funder consent.

Why It Matters

The revenue purchase agreement is the most important document in any MCA transaction. Everything the funder is entitled to collect, every restriction on your business's operations, and every remedy available to the funder in a default scenario is defined in this document. Read it completely — do not rely on verbal representations from a salesperson. Key sections to review include the purchased amount, default events, personal guarantee scope, and arbitration or confession of judgment provisions.

Frequently asked questions

Do I need an attorney to review a revenue purchase agreement?

For advances above $50,000, having an attorney review the RPA is strongly advisable. Key issues to have an attorney evaluate include the default event definitions, the scope of the personal guarantee, any confession of judgment clauses, the arbitration forum and rules, and any covenants that restrict your business operations. A brief attorney review — typically 1 to 2 hours — costs $300 to $600 and can identify provisions that should be negotiated or declined before you sign.