A merchant cash advance (MCA) is a purchase of future revenue, not a loan. The funder advances a lump sum and, in exchange, receives a fixed dollar amount of the business's future receipts — typically by withholding a percentage of daily card sales or daily ACH debits. Because MCAs are sales of receivables and not loans, traditional lending disclosures often don't apply, which is why so many owners get blindsided by the true cost.
Factor rate, not interest rate
An MCA is priced as a factor rate — a multiplier applied to the advance amount. A $50,000 advance at a 1.30 factor rate means the funder collects $65,000 total. There is no interest accruing over time; the total payback is fixed at signing.
Because there's no interest in the traditional sense, an MCA's true annualized cost depends entirely on how fast it's paid back. A 1.30-factor advance paid back over 6 months produces a much higher annualized cost than the same advance paid back over 18 months. This is the math most owners don't run.
Estimated APR is much higher than the factor implies
Industry analyses and CFPB-related research routinely find that MCA APR-equivalents commonly fall in the 40%–350% range when annualized, with shorter remit terms producing the highest effective costs. The factor-rate quote alone hides this — a CFO-level cost analysis requires modeling the daily/weekly remit against the actual payback timeline.
Repayment mechanics
Two common remit structures: (1) a percentage of daily card sales (split-funding through the merchant's processor), or (2) a fixed daily or weekly ACH debit from the operating account. Variable remit is friendlier when sales dip; fixed daily ACH is more punishing.
Many MCAs include reconciliation provisions that let the borrower request a remit adjustment if revenue drops materially. These provisions vary in how aggressively they're honored — read the actual contract language, not the marketing.
Stacking and confession of judgment
Two practices made MCAs notorious in the late 2010s: (1) stacking, where a borrower takes a second or third advance on top of an existing one, compounding the daily remit until it consumes nearly all revenue, and (2) confession-of-judgment clauses, which let a funder obtain a court judgment without notifying the borrower. Several states have restricted COJ use against out-of-state borrowers; many funders no longer require them. Confirm in writing.
When an MCA can make sense
MCAs can make sense in narrow situations — bridging a definite, near-term receivable; funding a high-ROI inventory buy that flips quickly; covering a short, time-bound emergency. They rarely make sense as ongoing working capital, and they almost never make sense for a business that has a path to a conventional bank line or an SBA loan.
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Editorial note: This article is general information about how small-business lending products work. It is not financial, legal, or tax advice for any specific borrower. Loan terms, eligibility, and rates vary by lender, borrower profile, and current market conditions, and the specific facts of your business will determine which products and structures actually fit. Consult a CPA, attorney, or SBA-approved lender before making decisions that affect your business.