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Cash advance MCA
Also called merchant cash advance, MCA, advance, purchase of receivables.
A lump sum paid now in exchange for a larger fixed amount of the business's future receipts, collected by daily or weekly debit, and structured as a purchase rather than a loan.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The funder buys a stated dollar amount of your future receivables, the purchased amount, for a smaller sum today, the purchase price. Repayment is collected as a specified percentage of receipts, in practice usually a fixed daily or weekly ACH debit set as an estimate of that percentage, with a reconciliation mechanism on paper to adjust when receipts change.
The economics are fixed at signing. There is no interest rate accruing on a balance, no amortization and no benefit to paying early unless the contract grants one. The cost is the difference between purchase price and purchased amount, described as a factor rate.
Underwriting is bank-statement driven: deposits, average daily balance, negative days, existing positions. Approvals are quick and pricing is set mainly by risk and position, which is why a second or third advance behind an existing one costs much more than a first.
Whether an advance is legally a purchase or a disguised loan is the central contested question of this market, and courts have repeatedly analysed it by asking whether there is a genuine reconciliation right, whether the term is indefinite rather than fixed, and whether the funder truly bears the risk of the merchant's failure, including whether the merchant's bankruptcy is treated as a default. The characterization matters because usury and lending license statutes apply to loans and not to purchases.
Where this one catches people
The daily payment is the wrong number to shop on. A lower daily debit on a longer term or a higher factor can cost far more in total, and it is the metric brokers lead with because it is the one that sounds affordable. Compare total payback against net cash received, and then convert to an annualized figure before comparing to anything else.
Worked through
Purchase price 50,000, factor 1.32, purchased amount 66,000, repaid over 110 banking days at 600 a day. Cost is 16,000 on 50,000 received, spread over roughly five calendar months. Net of a 3 percent origination fee the merchant received 48,500, so the real cost is 17,500 on 48,500.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Cash advance — common questions
What does cash advance mean?
A lump sum paid now in exchange for a larger fixed amount of the business's future receipts, collected by daily or weekly debit, and structured as a purchase rather than a loan.
Where does cash advance catch people out?
The daily payment is the wrong number to shop on. A lower daily debit on a longer term or a higher factor can cost far more in total, and it is the metric brokers lead with because it is the one that sounds affordable. Compare total payback against net cash received, and then convert to an annualized figure before comparing to anything else.
Is cash advance the same as an interest rate?
Cash advance is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does cash advance apply to?
Merchant Cash Advance, Working Capital, Revenue-Based Financing.
Is there a worked example of cash advance?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside cash advance?
Annual percentage rate, Contract for the sale of future receivables, Factor rate, Holdback, Purchased amount.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.