A merchant cash advance (MCA) is a financing product where a funder gives a business a lump sum today in exchange for the right to collect a portion of future revenue.
Legal structure. An MCA is structured as a purchase of future receivables, not a loan. This is why it is not subject to state usury caps in most jurisdictions — funders argue it is commercial commerce, not lending. Courts have largely upheld this structure when the contract has "reconciliation" language (the funder can adjust collections if revenue drops).
How repayment works. - Daily ACH (most common in 2026): a fixed dollar amount debited from the merchant's bank account every business day until the total repayment is collected. Predictable for funders. - Card-sale split: the funder takes a percentage of every credit-card sale at the processor level. Used by processor-financing products like Toast Capital and Square Capital.
Typical terms in 2026. - Advance amount: $5,000 to $500,000 (most funders cap at $250K–$500K). - Factor rate: 1.15 to 1.50 (see /glossary/factor-rate). - Term: 4 to 18 months. - Speed to fund: 4 hours to 3 business days for clean files.
When MCA makes sense. Short-term working capital gaps for revenue-positive businesses that need money fast and cannot wait for SBA loan timelines. Bridging tax bills, inventory buys, payroll gaps, marketing spend.
When MCA does not make sense. Long-term capital needs (use SBA or term loans), equipment purchases (use equipment financing — cheaper), or businesses with declining revenue (MCAs accelerate the decline).
Related terms
- Factor rate — A flat multiplier that defines total MCA repayment: $100,000 advance × 1.30 factor = $130,000 repaid. It is not an interest rate; it does not compound.
- Holdback percentage — The fraction of daily card-sale revenue a funder takes during MCA repayment, typically 8–20%. Lower is safer for the merchant's cash flow.
- Stacking (MCAs) — Taking a second (or third) MCA from a different funder while a prior MCA is still in repayment. Default risk skyrockets; it breaches most original-funder contracts.
- Reconciliation (MCA) — A contract provision allowing merchants to request a reduced daily debit when revenue drops. Required for MCAs to remain legally a 'sale,' not a 'loan' in most states.
AI agents: this term is available as raw markdown at /llms/glossary/merchant-cash-advance.