A merchant cash advance is a purchase of your future revenue. A funder gives you a lump sum today and collects a fixed percentage of your daily or weekly sales until an agreed total is repaid. It is not structured as a loan and carries no interest rate. It carries a factor rate, which works differently, and that difference is the part most business owners are never shown.
How does a merchant cash advance work?
The mechanics are simpler than most business financing. A funder reviews your recent bank statements, mainly looking at revenue consistency and how long you have been operating, and offers you a lump sum. In exchange, you agree to repay a set total, and the funder collects it as a percentage of your sales until that total is reached.
Because repayment is tied to sales rather than a calendar, the payment moves with your business. A slower week means a smaller payment. A stronger week means a larger one. That flexibility is the genuine appeal, and it is why the product exists at all.
Approval leans on revenue, cash flow consistency, and time in business. Credit matters far less than it does at a bank. That is why an advance is available to businesses a bank would decline, and it is also a large part of why it costs more.
What does a merchant cash advance cost?
This is where advances are misunderstood, and it is worth five minutes of arithmetic.
An advance is priced with a factor rate, not an interest rate. A factor rate is a multiplier applied to the amount advanced, and it sets your total repayment at signing.
A worked example. Suppose a business is advanced $100,000 at a factor rate of 1.30. The total repayment is $100,000 multiplied by 1.30, which is $130,000. The cost is $30,000. That figure is illustrative, not a quote, and every deal is priced on its own numbers.
Here is the part that matters. That $30,000 is fixed at signing. On a loan, paying early saves you interest. On a straight merchant cash advance, paying early does not reduce the $30,000 unless your contract includes an early-payoff discount, and many do not. So the same $30,000 spread over six months is roughly twice as expensive per month as the same $30,000 spread over twelve.
Two questions to ask any funder before you sign, including ours:
- What is the total repayment amount, in dollars?
- Is there an early-payoff discount, and is it in writing?
Any funder should answer both immediately and without hedging. If getting a straight answer is difficult, that is information too.
For how this compares to the cost of other products, see what business financing actually costs.
How is an MCA different from a business loan?
| Merchant cash advance | Term loan | Line of credit | |
|---|---|---|---|
| Legal structure | Purchase of future revenue | Loan | Revolving credit facility |
| Cost expressed as | Factor rate, fixed at signing | Interest over the term | Interest on the drawn balance |
| Repayment | Percentage of daily or weekly sales | Fixed scheduled payments | Flexible, as you draw and repay |
| Typical term | 3–18 months, set by risk profile | 15–24 months | 10–24 months |
| Speed to fund | As fast as one business day | Fast, for well-qualified businesses | Typically about two business days |
| Weighs most heavily | Revenue, cash flow, time in business | Credit and financial history | Credit and revenue |
| Best for | A short, urgent gap with a clear end | A larger need with gentler payback | A safety net drawn only when needed |
Who qualifies for a merchant cash advance?
Qualification is revenue-driven rather than credit-driven. Funders generally look for consistent deposits over recent months, a minimum time in business usually measured in months rather than years, and revenue that comfortably supports the daily or weekly draw.
What matters more than any single threshold is the shape of your revenue. Consistent deposits with few negative days will get a better structure than higher revenue that swings hard month to month, because the funder is underwriting the reliability of the repayment stream.
For a fuller picture across every product, see what lenders actually require.
When is a merchant cash advance the wrong choice?
An advance is genuinely the right answer for a short, well-defined gap. There are four situations where it is not, and we would rather tell you now.
You are already carrying one or more advances. Stacking a second daily-payback obligation on top of the first is how businesses get into serious trouble. We do not solve stacked positions with a larger advance, and anyone offering to is not doing you a favor.
Your margins cannot absorb the daily draw. A percentage of daily sales comes off the top, before your own costs. A thin-margin business can be perfectly current on the advance and still short on payroll. Run the daily payback against your actual daily operating costs before you sign, not after.
The gap has no end date. These work when you can name what closes the gap: an invoice landing, a season turning, a contract paying out. If revenue is declining, an advance postpones the problem and attaches a cost to it.
You qualify for something cheaper and you can wait. If asset-based lending or an SBA loan is within reach and the need is not urgent, the slower product is usually the better deal by a wide margin. Speed costs money. Only buy it when you need it.
Why do some advisors call it a revenue advance?
Some advisors, ourselves included, call this product a revenue advance. The name is more accurate, because what is actually being advanced against is your revenue, not your merchant processing.
The change is also partly reputational, and it is worth being straight about that. "Merchant cash advance" picked up its reputation from how the product has often been sold: to businesses that could not service the payback, without the arithmetic above ever being explained. The tool is legitimate. The selling frequently was not.
Whatever it is called, the questions are the same. What is the total repayment. What is the daily draw against my actual margins. Is there an early-payoff discount in writing. Get those three answers and you can evaluate any offer put in front of you, from us or from anyone else.
If you want to see how we structure this product, see our revenue advance and merchant cash advance pages.
Common Questions
Get the Math Before You Sign.
If you have an offer in front of you, we will walk through the total repayment, the daily draw against your margins, and the payoff terms with you, whether or not the deal is ours. If you are still deciding, we will look at your numbers and tell you which structure actually fits.
Speak with an advisor