Estimated Term | MCA Glossary

Definition

The projected repayment duration of a merchant cash advance, calculated by dividing the total purchased amount by the expected daily remittance based on current revenue levels.

Explanation

The estimated term is the MCA equivalent of a loan's repayment period — but with an important distinction: it is an estimate, not a guarantee. Because MCA repayment is tied to revenue through a holdback percentage, the actual repayment duration depends on the business's future revenue performance, which can differ significantly from historical averages. Funders calculate estimated term by dividing the total purchased amount by the anticipated daily remittance. If the purchased amount is $78,000 and the daily remittance is expected to average $520 based on historical revenue, the estimated term is 150 business days — approximately 7 months. If business revenue exceeds expectations, repayment completes faster and the equivalent APR increases. If revenue falls below expectations, repayment extends and the equivalent APR decreases. For traditional term loans, the payment schedule is fixed regardless of revenue — the MCA's variable repayment is one of its structural differences, though ACH-based MCAs blur this distinction by fixing the daily payment regardless of actual revenue.

Example

A food truck with $28,000 per month in card sales takes a $42,000 MCA with a 1.35 factor rate ($56,700 purchased amount) and a 12% holdback. Expected daily remittance: approximately $153 (based on 22 business days per month). Estimated term: 371 business days, approximately 17 months. If summer season pushes daily sales to $45,000 per month, the higher remittance could complete repayment in roughly 10 months.

Why It Matters

The estimated term is the time dimension of your MCA cost. Converting the factor rate to equivalent APR requires the estimated term — a 1.35 factor rate on a 6-month term is approximately 70% equivalent APR; on a 12-month term it is approximately 35%. Negotiate the estimated term alongside the factor rate and holdback percentage to fully understand the cost structure before signing.

Frequently asked questions

What happens if my MCA takes longer to repay than estimated?

If repayment extends beyond the estimated term due to lower-than-projected revenue, the MCA continues — there is no maturity date that triggers a balloon payment or default. The advance simply runs longer until the full purchased amount is remitted. Extended repayment means your equivalent APR is lower than initially estimated, but your cash flow is affected for a longer period. Some funders include contract language that reassesses the holdback rate if repayment extends significantly beyond the estimated term.