In Connecticut, there are basically two ways to advance money to someone else who then is supposed to pay you money. Lending or factoring. Lenders make loans. Factors purchase contingent future interests. The difference is the likelihood of the other person actually paying you.
A loan, in Connecticut, has been defined as a contract whereby in substance one party transfers to the other a sum of money which that other agrees to repay absolutely together with such additional sums as may be agreed upon for its use. See BRIDGEPORT L. A. W. CORPORATION v. LEVY, 110 Conn. 255, 260 (1929).
On the other hand, a factored transaction includes a risk that the factor will not get repaid.
Loans are relatively highly regulated (though not as much now, as before the financial crisis of the 1980s). Factored transactions are very much unregulated. That has been true for centuries.
A problem arises for a factor when they are too eager to get paid, and put clauses into their factoring agreement that substantially amount to an absolute guarantee of repayment. Then their factored transaction becomes, in substance, a loan — and things that otherwise would be ok, become illegal.
