What Is a Merchant Cash Advance? How an MCA Works, What It Costs, and Who It's For

People call it an "MCA loan." Funders call it a "purchase of future receivables." Google calls it "revenue-based financing" now. All three are the same product, and if you run a business that takes in money every day, someone has probably pitched it to you. This is what it actually is, written by someone who places them for a living.

The short version

You have a business that deposits, say, $180,000 a month. A funder offers you $50,000 today. In exchange you agree to pay back $66,000, collected as $550 every business day for 120 business days, pulled from your bank account by ACH.

That is the whole product. Everything else is detail: how the $66,000 was arrived at, what happens if your sales drop, what the contract says about a second advance, and what it costs compared with the alternatives.

Is a merchant cash advance a loan?

No, and the difference matters in practice, not just on paper.

A loan is money lent at an interest rate, repaid on a schedule, with a maturity date. A merchant cash advance is a sale. You sell the funder a specific dollar amount of your future revenue ($66,000 in the example) for a smaller amount today ($50,000). Because it is a purchase and not a loan:

• There is no interest rate. The cost is fixed up front as a factor rate.
• There is no fixed maturity date in a true MCA. If your sales fall, your payments are supposed to fall with them and the term stretches. (Most contracts today use a fixed daily ACH with a reconciliation clause instead; more on that below.)
• State usury caps generally do not apply, which is why an MCA can legally cost what it costs. This is also why regulators in several states have stepped in to require disclosures.
• It usually does not report to your business or personal credit unless you default and it goes to judgment.

Courts have spent years arguing over whether specific contracts are "really" loans, and the answer usually turns on whether the funder truly took on the risk of your sales going down. For you as the merchant, the practical point is simpler: the price is fixed the day you sign, and the daily payment is what you will feel.

How a merchant cash advance works, step by step

1. You apply. A short application (legal name, EIN, ownership, monthly revenue, use of funds) and three to six months of business bank statements. Most funders also want a voided check and a copy of your ID. A bank login through Plaid can replace the PDF statements and speeds things up.

2. The file is underwritten. An underwriter reads your statements. They are looking at average monthly deposits, how many days your balance went negative, how many payments bounced (NSFs), how long you have been in business, what industry you are in, and whether you already have other daily debits going out. Your credit score is checked but it is not the main event; a 550 with clean statements usually gets funded, and a 720 with twelve NSFs usually does not.

3. You get an offer. The offer has four numbers: the advance amount, the factor rate, the term, and the daily (or weekly) payment. Some offers also include an origination or underwriting fee that comes off the top.

4. You sign and get funded. Contracts are signed electronically. Funding is by wire or ACH, often the same day the contract is signed if it is done before the funder's cutoff. A "funding call" confirms your identity and that you understand the terms.

5. Repayment starts the next business day. The funder debits your account every business day (or every week) until the full payback amount is collected.

The four numbers on every offer

Advance amount

What the funder is buying your receivables for. This is the number that gets quoted first and it is the least important of the four, because it is not what lands in your account.

Factor rate

The multiplier that sets the total payback. Multiply the advance by the factor rate and you have what you owe. It is written as a decimal: 1.20, 1.32, 1.45.

The factor rate is not a percentage and it does not work like interest. A 1.32 factor on a 4-month deal and a 1.32 factor on a 10-month deal cost exactly the same number of dollars. Time does not change it. That is the single most misunderstood thing about this product, and it cuts both ways: paying early does not save you anything unless the contract has a prepayment discount, and a longer term does not cost you more.

Most offers fall between 1.20 and 1.50. Where yours lands depends on how clean the statements are, how long you've been in business, and whether you already have an advance.

Term

How long the funder expects to take to collect. Quoted in business days (Monday to Friday), so a "120-day" deal is about five and a half calendar months. Common terms run from 60 to 250 business days. Longer terms exist for larger, cleaner files.

Payment

Total payback divided by the number of payments. $66,000 over 120 business days is $550 a day. Some funders debit weekly instead ($2,750 a week in the same example), which some merchants prefer because it lines up with how they pay staff.

The number underwriters care about most is the daily payment as a share of your average daily deposits. $180,000 a month is roughly $8,570 per business day, so $550 is about 6.4% of it. Under 10% is comfortable. Between 10% and 15% is where most B and C paper sits. Above 15% to 20%, most funders decline, and if you are already there with existing advances the better conversation is a reverse consolidation rather than another position.

What an MCA costs

Use dollars first, then percentages.

In dollars: the cost is total payback minus the advance, plus any fees. $66,000 minus $50,000 is $16,000, plus a 3% origination fee ($1,500), so $17,500 to have $48,500 in your account for about five months.

As a simple annualized rate: (factor − 1) × 365 ÷ calendar days in the term. For 1.32 over 120 business days (168 calendar days): 0.32 × 365 ÷ 168 = 69.5%, before fees.

As a disclosure-form APR: higher, often close to double the simple rate, because you are repaying in daily pieces from day one and because fees reduce the cash you actually received. On the example above the estimated APR is around 140%. This is the number New York and California now require on the disclosure, and it is the right number for comparing an MCA against a term loan or a line of credit.

Here is what the factor rate does to a $10,000 advance, before fees:

Two levers. The factor sets the dollars. The term sets how fast they leave your account. Run your own numbers in our merchant cash advance calculator.

Is that expensive? Compared with a bank loan at 9%, yes, obviously. The honest comparison is not with the bank loan you did not get; it is with what the money does. A restaurant that spends $50,000 on a walk-in cooler that was about to fail, and would have lost $30,000 in inventory and two weekends of service without it, came out ahead. A landscaper who takes the same $50,000 to cover payroll during a slow month with no plan for the next slow month did not, and will be back for a second position in ninety days.

Holdback vs fixed daily payment

The original MCA, from the card-processing days, took a fixed percentage of your daily card sales (the "holdback," usually 10% to 20%) until the payback was collected. Big day, big payment; slow day, small payment. The term was an estimate.

Most advances today instead use a fixed daily ACH: the same dollar amount every business day, pulled from your operating account regardless of that day's sales. It is simpler for everyone, and it is why the daily payment is the number to watch.

Fixed-ACH contracts keep the "purchase of receivables" structure through a reconciliation clause: if your revenue drops, you have the contractual right to ask the funder to recalculate the daily payment down to the agreed percentage of your actual sales. It exists for real, sustained drops in revenue, not for the first slow week. If your sales fall materially and the daily debit no longer fits, read the contract for "reconciliation" or "true-up" and talk to your broker or funder before you miss a payment; the request is made in writing with your recent statements.

Who qualifies

Every funder has its own box, but the broad thresholds for a first position in 2026 look like this:

The full checklist, with the documents you need and the thresholds by tier, is in Small business loan requirements: what banks, online lenders and cash advance funders each ask for.

What an MCA is good for, and what it is not

Good uses, the kind that pay for themselves inside the term:

• Inventory for a season you know is coming (Q4 retail, summer for landscapers, tax season for preparers)
• Equipment that is down and costing you money every day it stays down
• A deposit to land a contract you would otherwise lose
• Bridging a large receivable you can see on the calendar
• Paying a vendor early for a discount larger than the cost of the advance

Bad uses, where the payment becomes the problem:

• Covering a structural loss month after month
• Paying off another advance without a plan (this is how stacking starts)
• Anything where you cannot say, in one sentence, what the money earns

The test is simple. If the cash produces more than the cost of the advance before the payback is done, it was the right tool. If it does not, it was the wrong one, no matter how fast it arrived.

MCA vs the alternatives

If you qualify for a line of credit, it's usually the cheaper product. Most of the merchants we fund don't yet, and we place both, so one application shows you which one your file supports.

What happens if you cannot pay

Miss a debit and the funder's system will usually retry it. Miss several and you are in default under most contracts. From there: default notices, enforcement of the UCC lien the funder filed when you were funded, a call on the personal guarantee, and in some states a confession of judgment (New York restricted these in 2019; Texas voided them in 2025; New Jersey banned them in 2020).

None of that has to happen. The moment you can see a problem coming, the options in order are: invoke the reconciliation clause, ask for a term-out or a renewal, or restructure the daily total with a reverse consolidation. Every one of those works better before the first missed payment than after.

Is a merchant cash advance regulated?

More than it used to be. There is no federal licensing regime for MCAs, and the CFPB confirmed in 2026 that they fall outside its small-business lending data rule. But at the state level:

• New York requires a written disclosure before signing on financing up to $2.5 million, showing the total funded amount, the amount actually disbursed, the total repayment, the finance charge, an estimated APR, the average monthly payment, and the prepayment terms. Brokers must separately disclose their compensation.
• California requires APR on every offer and on any communication that mentions a rate or amount, with rules tightened in January 2026.
• Texas now requires disclosures on sales-based financing under $1 million, voids confessions of judgment, and requires funders and brokers to register with the state by the end of 2026.
• Connecticut, Florida, Georgia, Virginia, Utah, Kansas, Missouri and Louisiana each have their own disclosure law.

If you are in one of those states and a funder or broker did not give you a disclosure, that is not a paperwork slip. It tells you something about who you are dealing with.

How Fuse Funders fits in

The product itself, with current ranges and the application, is on our merchant cash advance page. We are a broker. We do not fund from our own balance sheet; we place your file with the funder whose box it fits, out of a panel of a dozen. That means you fill out one application and get the offer that the right funder would give you, rather than the one offer whichever company you happened to call would give you. We get paid by the funder, and in New York we show you that number.

The application takes a few minutes, does not affect your credit, and returns a decision the same business day.

Apply now · or call (917) 776-8618 and ask for the desk.

Frequently asked questions

Is a merchant cash advance the same as a business loan? No. A loan is money lent at interest with a maturity date. An MCA is a purchase of a fixed amount of your future sales at a discount, repaid through daily or weekly debits. Merchants often call it an "MCA loan," and funders often call it "revenue-based financing," but the product is the same.

How does a merchant cash advance work? A funder advances you money today in exchange for a larger fixed amount collected from your future revenue, usually as a fixed daily ACH over 60 to 250 business days. Approval is based mainly on your bank deposits.

What is a factor rate? The multiplier that sets your total payback. A $50,000 advance at a 1.32 factor pays back $66,000. It is fixed at signing and does not decrease as you pay down.

What credit score do you need? Most funders have a floor around 500 to 550, but deposits, NSFs and time in business matter more. Credit mostly moves the price, not the decision.

How fast can I get funded? Same business day is normal if the application and statements are in before the funder's cutoff and there are no surprises in underwriting. Next day otherwise.

Can I pay a merchant cash advance off early? You can, but it only saves money if the contract includes a prepayment discount. Without one, the payback is fixed. Ask for the discount schedule in writing before you sign.

Does an MCA affect my credit? Usually not, unless you default and the funder obtains a judgment. Most funders do a soft pull at application.

Can I get a merchant cash advance if I already have one? Often, yes, as a second position, priced for the added risk. If your existing daily debits are already heavy relative to deposits, a reverse consolidation may be the better route; the application tells us which.

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