A merchant cash advance is the fastest business money most owners will ever be offered — and usually the most expensive. It is also widely misunderstood, starting with the name: despite the word “advance,” the contract is drafted as a sale of your future receipts at a discount, not as a loan. This page is the map of the whole product: how the purchase works, what it really costs, the contract machinery that matters, what happens when it goes wrong, and the cheaper routes to check first. Nothing on this site is for sale; the goal is that you can price any MCA quote yourself before you sign it.
General information, not financial or legal advice. Whether any specific agreement is a purchase or a disguised loan is a contested legal question decided contract by contract; the cases below are stated as they were decided, not as predictions about yours.
The funder pays you a lump sum (the advance, or purchase price) and in exchange buys a fixed dollar amount of your future card and bank receipts (the purchased amount, or total payback) for less than it is worth. The discount is the price, expressed as a factor rate: payback = advance × factor. A $50,000 advance at 1.30 buys the funder $65,000 of your future receipts.
The sellers come in three kinds: funders who buy directly, brokers and ISOs who place deals with funders for a commission (sometimes deducted from your funding), and embedded platforms — Stripe Capital, Square Loans and PayPal Working Capital are structurally similar purchase-of-receipts products offered inside software you already use. Whoever sells it, the arithmetic and the contract hazards are the same.
Remittance happens one of two ways. Under a holdback (also called the specified percentage or retrieval rate), your card processor or bank diverts a fixed percentage of receipts — most often cited at 10–20% — before the money reaches you, so payments float with sales by construction. Under a fixed debit, a set amount leaves your account daily or weekly, sized from projected receipts; it does not adjust itself when sales dip. Because remittance tracks receipts, a genuine MCA has no fixed term — most complete in roughly 3–18 months. The bridge between the two structures is reconciliation, the clause that trues debits up to the specified percentage of your actual receipts — and, as the cases below show, the clause the whole legal character of the product can turn on. Mechanics, and how to run a reconciliation, are in how MCA payments work.
Factor rates are most often quoted between 1.1 and 1.5, and the factor is a one-time multiplier on the original advance — not an annual rate, and it never shrinks as you remit. Fees stack on top: origination and underwriting charges commonly run 1–5% of the advance and are typically deducted from funding, so payback is computed on money you never received. On this site’s standard worked deal — $50,000 at 1.30 with $1,000 in fees deducted, remitted over a projected 10.8 months — the honest figures are $65,000 of payback on $49,000 received: a $16,000 cost, which annualises to 33.2% by the simple method, 61.20% as a nominal IRR, or 81.64% as an effective annual rate. All three describe the same contract; the spread between them is why MCA factor rates explained exists, and the MCA calculator prices your own quote the same way.
Funders draft these agreements as purchases specifically so that usury laws, lending licences and federal lending disclosures do not apply. Courts, mostly in New York, decide case by case whether a given agreement is really a loan, weighing three things: whether repayment is absolute — tested by (1) a reconciliation provision that is mandatory and honoured in practice, (2) the absence of a finite term, and (3) no funder recourse if the merchant goes bankrupt. Agreements that failed that test have produced the $1.065 billion Yellowstone Capital judgment (with $534.5 million of merchant debt cancelled and operators permanently banned, NY AG, January 2025) and the $77 million Richmond Capital judgment, affirmed in February 2026. Agreements with a real reconciliation clause, no fixed term and no bankruptcy default have been upheld as purchases. The label on the contract does not decide it; the mechanics do.
Cost disclosure law is a patchwork: eleven states now have commercial financing disclosure laws, but only California and New York require an APR-style figure. Outside those states, an MCA offer usually arrives with no standardised cost disclosure at all — which is precisely why the pricing on this page is worth doing yourself. (This list changes as legislatures act and is maintained with this page.)
MCAs are marketed hardest to businesses banks declined, card-heavy retailers and restaurants, and seasonal operators between peaks — borrowers whose receipts are visible and whose options feel thin. Speed is real (decisions in days, minimal paperwork), and nothing here pretends otherwise; the question is only the price. Before signing anything, pull these eight items out of the agreement: the net funded amount after every deducted fee; the purchased amount; the specified percentage and whether debits are fixed or floating; the reconciliation clause wording (“shall reconcile” versus “at the funder’s discretion”); any confession of judgment; the scope of the personal guaranty; the UCC lien filing; and any broker compensation taken from your funding. If a number can’t be found in the document, that is the answer about the document.
Adjacent structures live in their own clusters: revolving credit in business lines of credit, selling invoices you have already issued in invoice financing, and the wider loan landscape in small business loans.
Is a merchant cash advance a loan? The contract says no — it is drafted as a purchase of future receipts, which is why loan protections like usury caps and federal rate disclosures do not automatically apply. But courts decide the question from the mechanics, not the label: where reconciliation was illusory, debits were fixed regardless of sales, and the funder kept recourse on bankruptcy, New York courts have held these agreements to be loans after all. Both statements are true of different contracts.
How does a merchant cash advance work? A funder pays a lump sum today and buys a larger fixed amount of your future receipts at a discount set by a factor rate. The receipts are collected either as a percentage of each day’s sales (a holdback) or as a fixed daily or weekly debit, until the purchased amount is fully remitted — typically within 3–18 months, faster when sales are strong.
What is a factor rate? The multiplier that sets the payback: advance × factor rate = total payback. At 1.30, a $50,000 advance costs $65,000 of future receipts. It is charged once, on the original amount, and is not an interest rate — the same factor costs far more per year when the money is remitted in four months than in twelve.
What are the pros and cons of a merchant cash advance? The genuine pros are speed, light paperwork, no hard collateral, and approval based on receipts rather than credit history. Each has a price on the other side: the cost is typically the highest of any mainstream business product, debits drain cash daily or weekly, early payoff saves nothing, and the contract carries machinery — liens, guaranties, sometimes confessions of judgment — that a plain loan does not. The full accounting is in the cost section above.
General information, not financial or legal advice. Sources: LessOwe cluster 1.6 shared fact bank (2026-10-23) — structure and pricing per NerdWallet, Stripe and The Hartford explainers (Oct 2026); legal character per LG Funding v United Senior Properties (2d Dept 2020), Davis v Richmond Capital (1st Dept 2021), People v Richmond Capital (affirmed Feb 2026) and the NY Attorney General’s Yellowstone Capital settlement release (Jan 22, 2025); disclosure landscape per CA DFPI, NYDFS and law-firm compliance summaries (Venable, DLA Piper, T.A.G., Oct 2026). Currency verified 2026-10-23.