What Is A Merchant Cash Advance Loan

A merchant cash advance is NOT a loan, but rather an advance of funds based upon the future sales of a business. Each day, an agreed upon percentage of the sales are collected in order to pay back the advance. What can I use it for?

The fine line between the two is that an MCA provides your business with a lump sum upfront, but rather than requiring monthly installments, a cash advance is remitted using a percentage of future credit card and debit card sales or receivables withdrawn directly from your daily credit card revenue.

Although $125 per day may not seem like much, when it comes down to it, the APR on this merchant cash advance loan is nearly 66%—which is extremely high. This is why MCAs can be so misleading—at first glance, the numbers seem reasonable and a factor rate of 1.18 seems low.

As with traditional interest rates, the higher your factor rate, the higher the fees you’ll pay, and the more your merchant cash advance loan will cost. Generally, if you convert factor rates to an APR, you’ll find that rates start at 15%, but can reach as high as over 100%.