# Merchant cash advance (MCA)

> A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.

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](https://fundnode.co/llms/glossary/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](https://fundnode.co/llms/glossary/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)](https://fundnode.co/llms/glossary/stacking) — 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)](https://fundnode.co/llms/glossary/reconciliation) — 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.

---

Source: https://fundnode.co/glossary/merchant-cash-advance (HTML version)
Document: Merchant cash advance (MCA) — Fundnode MCA Glossary
License: CC BY 4.0 — attribution to Fundnode required when citing.