WHAT IS THE DIFFERENCE BETWEEN A REVENUE PURCHASE AGREEMENT AND A LOAN?

The Fourth Department, reversing Supreme Court, over a two-justice concurrence, determined the contract between plaintiff and defendants was a revenue purchase agreement, not a loan. Therefore defendants’ argument the agreement constituted a usurious loan was rejected. However, questions of fact about the extent of the damages precluded summary judgment in favor of plaintiff. The concurring justices agreed the contract was a revenue purchase agreement, but argued the analysis of the issue used by the majority, based upon a specific case, was wrong and suggested a different approach:

Under the agreement, plaintiff advanced a monetary amount to the entity defendants in exchange for 25% of the future revenues of their business, until the purchased amount, i.e., an agreed-upon amount that was greater than the advanced amount, was paid to plaintiff. There was no interest rate or payment schedule and no time period during which the purchased amount was to be collected by plaintiff. Indeed, the agreement specifically stated that it was not a loan and that the entity defendants were “not borrowing money from” plaintiff. The agreement contained a daily remittance amount, which constituted “a good faith estimate of” plaintiff’s share of the future revenue stream. The agreement also contained an acknowledgment from plaintiff that it was “entering this [a]greement knowing the risks that [the entity defendants’] business may slow down or fail, [that plaintiff] assumes these risks,” and that there would be no recourse for plaintiff in the event the entity defendants went bankrupt, went out of business, or experienced a slowdown in business, among other things. The agreement also contained two reconciliation provisions, whereby the daily remittance would be modified both retroactively and prospectively upon request and with proof of earned revenue amounts. * * *

In determining whether a transaction constitutes a loan, courts must determine whether the plaintiff ” ‘is absolutely entitled to repayment under all circumstances’ “; “[u]nless a principal sum advanced is repayable absolutely, the transaction is not a loan” … . “Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy” (… see Samson MCA LLC, 219 AD3d at 1128 …). Bridge Funding Cap LLC v SimonExpress Pizza, LLC, 2025 NY Slip Op 04306, Fourth Dept 7-25-25

Practice Point: Consult this decision for a discussion of the nature of a revenue purchase agreement, as opposed to a loan. The majority used a Second Department case to structure its analysis. The two-justice concurrence agreed with the majority that the contract was a revenue purchase agreement, but suggested a different approach to the analysis.​