Merchant cash advance MCA

## The structure
A funder pays a purchase price today for the right to receive a larger purchased amount out of the business's future revenue. The difference between the two figures is the cost, expressed as a factor rate rather than an interest rate. There is no principal balance, no accrual and, usually, no maturity date - collection simply continues until the purchased amount has been received.

The contract names a specified percentage of receipts that has been purchased. In practice the funder debits a fixed amount daily or weekly, because a fixed debit is administratively simpler than recalculating a percentage every day. The fixed debit is an estimate of the percentage; the reconciliation clause is what reconnects it to actual revenue when the estimate turns out wrong.

## Why it is built this way
Documenting the transaction as a purchase rather than a loan is deliberate. If it is a sale of an asset, there is no interest rate to be capped by state usury law and no lender licensing regime to satisfy in most states. The features that support the purchase characterisation are the ones to look for: a percentage rather than a fixed sum, a reconciliation right, an indefinite term, and recourse limited to specified misconduct rather than to non-payment.

Whether a specific agreement really is a purchase is litigated regularly, decided under the governing law named in the contract, and turns on the operative terms rather than the label. Several states have also introduced commercial financing disclosure requirements that apply regardless of characterisation.

## What it is used for
Speed and low documentation, at a cost. Underwriting typically runs off bank statements and processing statements rather than tax returns, and funding can happen in days. The trade is price and rigidity: a fixed dollar cost that does not fall if you repay early.