Merchant Cash Advance (MCA) Definition | Business Lending Glossary

Definition

A form of business financing where a company receives a lump sum of capital in exchange for a percentage of its future revenue, repaid via automated daily or weekly debits.

Explanation

A merchant cash advance is technically not a loan — it is a purchase of future receivables. A funder advances capital today and purchases a larger amount of your future business revenue at a discounted rate. Repayment happens automatically through ACH debits from your business bank account, calculated as a fixed percentage of your daily or weekly deposits (the remittance rate). MCAs are known for fast approval — often same-day — and high approval rates for businesses with strong revenue but challenged credit or limited collateral. The cost is expressed as a factor rate rather than an interest rate, and the equivalent APR can be very high relative to traditional financing.

Example

A gym owner needs $60,000 for equipment upgrades. An MCA funder advances $60,000 at a 1.4 factor rate. The total repayment is $84,000, collected at 12% of daily bank deposits until paid. With average monthly deposits of $40,000, repayment takes approximately 7 months.

Why It Matters

MCAs offer the fastest access to capital for businesses that qualify — often funded within 24 to 72 hours — without collateral requirements or hard credit pulls. They are most appropriate for short-term capital needs with clear repayment visibility. For longer-term funding needs, the effective APR makes MCAs one of the most expensive financing options available.

Frequently asked questions

Is a merchant cash advance a loan?

Legally, a merchant cash advance is structured as a purchase of future receivables, not a loan. This means it is not subject to the same usury laws and disclosure requirements that apply to loans. The practical effect is that MCAs can carry very high effective costs without the legal protections borrowers have with traditional loans.

What is stacking in the context of merchant cash advances?

Stacking refers to taking multiple MCAs simultaneously from different funders. This is risky because each MCA draws from the same revenue stream, compounding repayment pressure. Many funders prohibit stacking in their agreements and will accelerate repayment or trigger default if they discover stacked positions.