A merchant cash advance is a lump sum paid to your business today in exchange for a set amount of its future sales. The funder buys those receivables at a discount and collects them from your business bank account, usually as a small debit each business day or each week, until the agreed total has been paid. There is no interest and no monthly bill, and the price is fixed before you sign, written as a factor rate. Because the funder is buying sales, it decides mainly on your deposits rather than collateral or a high credit score, so funding usually takes a day or two. Below is how a merchant cash advance works from offer to final payment, with an example in dollars, the two ways repayment is collected, what it costs and how to apply through us.
What is a merchant cash advance?
The plain merchant cash advance definition is a sale of future revenue. You agree to sell, say, $54,000 of your future receipts, and the funder pays you $40,000 for them now. The funder then takes a fixed share of what comes in until it has collected the $54,000, and once it has, the deal is finished. Nothing accrues while it is open, so a slow month does not add cost, and apart from any fees the contract lists, the total you agreed to is what you pay.
Because the funder is buying receivables rather than lending money, the agreement uses its own vocabulary. The purchase price is what you receive. The purchased amount, sometimes called the payback, is what the funder collects. The factor rate is one divided by the other, and the specified percentage is the share of your sales the funder is entitled to. Many owners still call it an MCA loan or a business cash advance, and our site calls it revenue-based financing, which is the same product we place as merchant cash advances. Our comparison of a merchant cash advance and a business loan covers the legal difference between the two in more detail.
State law describes the product in the same terms. Virginia's statute on sales-based financing defines it as a transaction repaid over time as a percentage of sales or revenue, where the payment can rise or fall with the volume of sales. The same definition covers deals paid as a fixed amount that include a reconciliation process to bring the payment back in line with a percentage of sales, which is how many advances are collected.
How does a merchant cash advance work, step by step?
Contracts differ in their wording, but the sequence is much the same from one funder to the next.
- You apply with a short form and four months of business bank statements.
- The funder makes an offer that names the purchase price, the factor rate, the purchased amount, the specified percentage and the payment, along with any fee taken out at funding.
- You sign the agreement, and the funder usually files a UCC-1 financing statement, a public notice that it owns a share of your receivables.
- The purchase price is wired or sent by ACH to your business account, typically within one to two business days of choosing the offer.
- Collection starts, either as a share of each card settlement or as a fixed ACH debit from your bank account each business day or each week.
- If sales fall, you can ask for a reconciliation, which compares what was collected with the specified percentage of your actual sales and lowers the payment to match.
- When the purchased amount has been collected, the debits stop and the funder ends its UCC filing, and if the contract includes an early payoff discount, finishing sooner lowers the total.
The UCC filing in step three is normal for this product. Article 9 of the Uniform Commercial Code applies to sales of accounts as well as to loans secured by them, so a funder that buys your receivables files the same kind of public notice a lender would. Our guide to the UCC lien explains what that filing says and how it is released after payoff.
A merchant cash advance worked through in dollars
Take a business that deposits about $60,000 a month from sales. It needs $40,000 for inventory ahead of a busy stretch, and it accepts an offer with a 1.35 factor rate and a 12% specified percentage. The figures below are an example only and are not a quote, since real terms depend on the funder and the file.
| Line on the offer | Example |
|---|---|
| Purchase price (what you receive) | $40,000 |
| Factor rate | 1.35 |
| Purchased amount (total payback) | $54,000 |
| Cost in dollars | $14,000, or 35 cents per dollar received |
| Specified percentage | 12% of receipts |
| Payment | About $343 each business day |
| Estimated term | About 158 business days, roughly seven and a half months |
The payment comes from the specified percentage. Monthly deposits of $60,000 work out to about $2,857 each business day, and 12% of that is about $343. At that pace the $54,000 is collected in about 158 business days. If sales drop to $45,000 a month for a stretch and the payment is reconciled, it falls to about $257 a day. The total stays at $54,000, so the advance takes longer to finish, and the cost in dollars does not change.
Some funders deduct an origination or underwriting fee at funding, so the amount that lands in your account can be a little below the purchase price. Our guide to factor rates and how an advance is priced shows how to turn any factor rate, fee and payment into the total payback and the term, so you can line up two offers in dollars.
The two ways a business cash advance is repaid
Funders collect in one of two ways, and the offer letter tells you which one applies.
With a split, the card processor sends the funder its percentage of each day's card settlements before the rest reaches your account, so a $3,000 card day sends $360 to the funder at 12% and a $1,500 day sends $180. The payment follows sales automatically, with no reconciliation needed, but it only counts card sales, so it fits businesses that take most of their revenue by card.
Many advances are collected by a fixed ACH debit from the business bank account, either each business day or once a week. The funder sets the payment by applying the specified percentage to your average deposits, which makes the payment predictable and lets the advance work for businesses paid by check, transfer or invoice as well as by card. Reconciliation keeps the fixed payment tied to sales. If deposits fall, you send the funder your recent statements, and the funder adjusts the payment, or refunds what was over-collected, so that it matches the agreed share of what actually came in.
What a merchant cash advance is good for
Owners choose a merchant cash advance for reasons of timing and access.
- It is fast, since the decision rests on four months of statements rather than tax returns and a business plan, and most applicants are funded within one to two business days of choosing an offer, some the same day.
- Approval is based on revenue, so a business with steady deposits can qualify without real estate to pledge or a high personal score, and our guide to a merchant cash advance with bad credit covers how funders weigh a lower score.
- Payments follow sales, so a reconciled or split advance takes less in a slow week instead of holding a fixed monthly bill at the same level.
- No collateral is usually required, because the funder relies on the receivables it bought rather than equipment or property.
- The money can go wherever the business needs it, from payroll and inventory to a repair or stock for a busy season.
Approval rates reflect how the product is underwritten. In the Federal Reserve Banks' 2025 Report on Employer Firms, 9% of businesses that applied for a loan, line of credit or cash advance sought a merchant cash advance. Of those applicants, 33% were fully approved, 58% were approved for part of what they asked for and 9% were denied. Business loan applicants were denied 32% of the time, and SBA loan or line of credit applicants 45%.
What a merchant cash advance costs
The cost of a merchant cash advance is the difference between the purchased amount and the purchase price, plus any fee taken out at funding. A 1.35 factor rate means you pay $1.35 for every dollar received, or 35 cents per dollar, and that figure does not grow if the advance takes longer to collect. Where an offer lands depends on the funder and on your revenue, time in business, how steady the deposits are, any advances already open and the term. You are paying for speed, for approval based on sales rather than collateral and for payments that move with revenue, so the useful comparison is the total payback and the payment against what the money will do for the business.
Four lines on an offer change the real cost, and they are worth reading before you sign.
- The fee taken out at funding lowers what reaches your account while the payback stays the same.
- The term and payment frequency decide how much leaves the account each day or week.
- An early payoff discount lowers the total if you finish within a set window, and without one the full purchased amount is owed whenever you finish.
- The reconciliation clause decides how quickly the payment can come down if sales slow.
Some states require standard cost disclosures on offers like these. California's rules, approved by the Department of Financial Protection and Innovation, require providers to show the total amount of funds provided, the total dollar cost, the term or estimated term, the method, frequency and amount of payments and any prepayment terms. Virginia's statute asks for similar figures, including the disbursement amount after fees, the total repayment amount and the estimated number of payments. If you already hold an offer, our team can read it alongside what the funders in our network come back with, and our page on how we beat your MCA offer explains how that works.
What funders look at
Funders start with your business bank statements. They look at average monthly deposits from sales, how evenly those deposits arrive, how often the balance runs low, any returned payments and any advances already being paid. Credit is checked too, usually with a soft pull at first, but it is one input among several. Our guide to how to qualify for a merchant cash advance walks through each of these in detail.
The funders we work with generally look for at least a year in business and about $20,000 a month in deposits. If you are not there yet, apply anyway, because some funders work with newer or smaller businesses and we will tell you plainly what is realistic for your file.
How applying for a merchant cash advance through us works
- Fill in our short application and add four months of business bank statements, either as uploads or by connecting your bank read-only.
- Your file goes to the funders in our network whose requirements fit your business, and most of them prequalify from the statements and a soft pull, so getting matched does not need a hard credit pull.
- Offers come back side by side, and our team goes through the amount, the factor rate, the total payback in dollars, the payment, the frequency and the reconciliation terms with you before anything is signed.
- Once you choose an offer, the funder finishes its review, and if it runs a hard pull at that stage you know before it happens.
- Most applicants are funded within one to two business days of choosing an offer, and some the same day.
Revenue-based financing through the funders we work with runs from $5,000 to $2,000,000, typically funds in one to two business days and usually needs no collateral. There is nothing to pay to apply or to see offers, and you are under no obligation to accept one. Our guide to choosing among merchant cash advance lenders covers what separates one funder's terms from another's.
Have your last four months of business bank statements ready and start your application, or call us at (818) 351-0225 to talk through what your business needs first.
Questions about merchant cash advances
What is a merchant cash advance?
A merchant cash advance is a lump sum a funder pays your business in exchange for a fixed amount of its future sales, which the funder collects as a share of card settlements or as a set daily or weekly debit from your bank account until the agreed total is paid. The price is fixed at signing, so a $40,000 advance at a 1.35 factor rate means $54,000 collected in all.
Is merchant cash advance legitimate?
Yes, a merchant cash advance is an established way for businesses to fund working capital, and states such as Virginia and California write rules for it, including standard cost disclosures that show the amount funded, the total repayment and the payments. In the Federal Reserve Banks' 2025 Report on Employer Firms, 91% of merchant cash advance applicants were approved for at least part of what they asked for, and the practical step is to read the purchased amount, the payment, the reconciliation clause and the early payoff terms before you sign, which our team goes through with you on every offer.
Is a merchant cash advance a good idea?
It is a good fit when you need working capital within days, your deposits are steady and the money will earn back more than its cost, such as stock for a busy season, payroll while a large invoice clears or a repair that keeps the business open. If you have strong credit and can wait several weeks, an SBA or bank loan will usually cost less, and comparing the total payback in dollars with what the money will bring in is the clearest test.
How much can you get from a merchant cash advance?
Funders size an advance mainly from your average monthly deposits and how much of them already goes to other funders, so the amount depends more on what the business brings in than on its credit score. Revenue-based financing through the funders we work with runs from $5,000 to $2,000,000, and applying once is the quickest way to see what your deposits support.
Do you have to pay back a merchant cash advance?
Yes, the funder collects the full purchased amount from your sales under the agreement, through the split or the daily or weekly debit, until it has been paid. If sales slow, reconciliation lowers the payment to match the agreed share of what actually came in, so the advance takes longer to finish rather than taking a larger slice of each day's sales.
