July 2026 | Client Alert
In Merchant Advance, LLC v. Conceptos Cuisine, LLC, 2026 TSPR 15 (“Merchant Advance”), the Supreme Court of Puerto Rico upheld the validity and enforceability of Merchant Cash Advance (“MCA”) agreements. Under an MCA, a funder purchases a merchant’s future receivables at a discount in exchange for an immediate lump-sum payment, with the merchant remitting a fixed percentage of daily revenues until the purchased amount is collected. The Court held that such agreements were valid under Puerto Rico law and did not constitute disguised loans, and emphasized that they were enforceable as true sales of future income streams.
The Court’s decision rested on the economic substance of the transaction. Because repayment was contingent on the merchant’s actual receivables, the funder bore the risk of business slowdown or failure, and no fixed repayment obligation or maturity date existed, the Court concluded that the agreement evidenced a true sale rather than a loan. The opinion reinforced the central importance of contractual autonomy and the Uniform Commercial Code framework, aligning Puerto Rico jurisprudence with the prevailing approach in U.S. courts.
The defendants defaulted and never appeared. Nonetheless, the lower courts declined to give effect to the agreement’s New York choice of law clause, concluding that enforcement would violate Puerto Rico public policy. The Supreme Court disagreed. Merchant Advance, a Wyoming limited liability company with its principal place of business in New York, had structured the transaction under Article 9 of the Uniform Commercial Code as adopted in New York and mirrored in Puerto Rico’s Commercial Transactions Act. The Court found these contacts sufficient to sustain the governing law selection and identified no conflict with Puerto Rico’s public policy.
The lower courts had characterized the agreement as a disguised loan subject to Puerto Rico’s usury statutes. The Supreme Court rejected that characterization on two grounds. First, and principally, the Court ruled that the agreement was not a loan and therefore fell outside Puerto Rico’s usury regime. Second, even had loan characterization applied, the Court noted that Article 12.09 of the General Corporations Act bars corporate borrowers—including limited liability companies—and their individual guarantors from invoking usury defenses, a rule the Court confirmed applied here.
In short, the Court’s holdings in Merchant Advance established a coherent legal framework for MCA agreements in Puerto Rico. The decision offered greater certainty for funders, merchants, and practitioners active in the commercial finance space.
O’Neill & Borges is available to assist clients in evaluating the implications of this decision, reviewing receivables-based financing structures, drafting MCA agreements, and advising on compliance with Puerto Rico’s Commercial Transactions Act. Our team also represents clients in litigation involving receivables financing, enforcement of security interests, and alternative lending arrangements.
For any questions regarding this matter, please contact any of the attorneys in our Corporate or Litigation Practice Groups or your primary O’Neill & Borges attorney.
Authors: José J. Colón García & Aníbal A. Román Medina
This O’Neill & Borges Client Alert is prepared for general information purposes only. It does not constitute legal advice or a legal opinion; nor does it establish an attorney-client relation with the recipient. For further information or to establish an attorney-client relation please contact us at info@oneillborges.com or your prime contact attorney at O&B.