Merchant Cash Advance (MCA)

A merchant cash advance (MCA) is a way for a business to get cash fast by selling part of its future sales. The funder pays a lump sum up front, often called the purchase price. In return, the business agrees to deliver a larger amount, often called the purchased amount, out of its future receipts.

A simple example: a funder pays $50,000 for $65,000 of a restaurant's future receivables. The ratio between the two, here 1.3, is the factor rate. The business delivers an agreed share of its receipts, called the holdback, until the full $65,000 is paid. Today, many funders collect fixed daily or weekly ACH debits sized to estimated sales. A reconciliation clause lets the business ask for lower payments if sales drop.

MCAs are generally structured as a purchase of receivables, not a loan, and that matters legally. Usury laws cap interest on loans. If a court treats an MCA as a true sale, those caps usually do not apply. Many have upheld MCAs as sales where the funder truly bears the risk that sales fall short, for example through a working reconciliation clause and no fixed term. Some courts, including federal courts in New York, have found specific agreements to be loans where repayment was effectively guaranteed whatever happened to sales.

Why it matters for lenders

MCA funders compete on speed. Many decide within a day, based on bank statement analysis rather than full financial statements. Because collections run daily or weekly, operations teams handle a high volume of payments, returns and payment changes.

Regulation has grown. Several states, including California and New York, have commercial financing disclosure laws that require cost disclosures, including an estimated annual percentage rate. A Texas law that took effect in September 2025 limits automatic debits and requires providers and brokers to register, with registration opening in September 2026. The Federal Trade Commission has also brought cases against MCA firms for deceptive terms and abusive collection.

How it works in practice

An independent sales organization (ISO), a type of broker, submits a deal for a retailer with three months of bank statements. The underwriter reviews average deposits, low-balance days and existing advances. She offers $40,000 at a 1.35 factor rate with a 10% holdback, collected by a daily ACH debit estimated from recent sales. Where a state requires it, the system produces the disclosure from those same terms.

After funding, the operations team posts each debit, tracks returns and handles reconciliation requests. Each request is logged, checked against actual sales and answered within the contract window. Funders that handle reconciliations in email often cannot show later that they honored them, which weakens the very structure that makes the deal a sale.