MCA Funding: What a Merchant Cash Advance Is and How It Works
Cash against future sales, priced with a factor rate, collected as the business runs. Compare funders before you sign.
Business funding for owners with business bank deposits. Not personal or payday cash.
A funder pays you a lump sum and collects a fixed, larger amount from your future sales, usually by daily or weekly debit. For example, $40,000 at a 1.30 factor means $52,000 is collected, about $412.70 each business day over six months, which works out to about 109% APR. For how Afterfirst takes one application and shops it, see Our five-step funder shopping process.
How is a $40,000 merchant cash advance repaid?
Example only, with round numbers so you can check the math by hand. They are not typical terms and not a quote; the funder sets the real terms.
A $40,000 advance at a 1.30 factor rate, no fees, repaid in 126 payments each business day, for a business that deposits $60,000 a month over 21 business days.
| Step | The math | Result |
|---|---|---|
| Total collected (the purchased amount) | 40,000 × 1.30 | $52,000.00 |
| Cost of the advance | 52,000 − 40,000 | $12,000.00 |
| Daily payment | 52,000 ÷ 126 | $412.70 |
| Debits in a 5-day week | 412.70 × 5 | $2,063.49 |
| Average daily deposits | 60,000 ÷ 21 | $2,857.14 |
| Share of each day's deposits | 412.70 ÷ 2,857.14 | 14.4% |
| Term | 126 ÷ 5 × 7 | 176.4 calendar days |
| Estimated APR | 126 daily payments, no fees | 109.3% |
With a holdback, the funder takes a set share of each day's sales instead of a fixed amount, so the payment moves with sales while the $12,000 cost stays the same. Switch the calculator to a holdback to compare the two. For the tradeoffs in one place, see merchant cash advance pros and cons.
Want real numbers for your business? Apply now. It's one free application, and every offer shows the total payback, the payment, the payment schedule and the term.
Run your own numbers
Enter an offer and your monthly actual deposits to see the payment and the share of each day's deposits it takes. Load this example into the calculator.
Enter your numbers to see results.
Results are estimates. Funders set the actual terms, and every offer is subject to funder underwriting. Nothing you type is stored or sent; the page address holds your numbers so you can share them.
When is a merchant cash advance worth the cost?
A merchant cash advance trades a higher cost for a payment tied to your sales and a decision that doesn't wait on a bank. Set the dollar cost against what the money does for the business.
Worth weighing when
- Deposits are steady and the payment still fits your slowest month.
- The money pays for something that earns more than it costs: inventory that sells, or a contract you can't take on without it.
- A bank or SBA loan isn't available in the time you have.
A poor fit when
- The advance covers a loss that will repeat next month.
- It would sit on top of an open advance and push the debits past what a slow month supports.
- You qualify for a bank or SBA loan and can wait for it.
We're not a funder.
We don't fund deals ourselves. We shop yours with funders who do, so you see more than one offer.
Only funders that fit.
Your file goes to funders that work with your industry and your deal size. Nobody else sees it.
You make the call.
Every offer comes to you in writing. Nothing happens until you pick one.
- What it costs to apply
- Nothing. Applying costs you nothing, and Afterfirst MCA charges you no fee.
- Credit
- Ask us how each funder checks credit before you agree to anything.
- Speed
- We call you back and talk with you before your file goes to any funder.
- Offers
- Every offer shows the total payback, the payment amount, how often it comes out, and the term.
How a merchant cash advance works, part by part
A merchant cash advance contract has four moving parts, and we read them in this order on every offer:
- Purchase price. The cash the funder pays for the receivables, before any fees are taken out.
- Purchased amount. The total the funder expects to collect. The purchase price times the factor rate gives this number.
- Remittance. The agreed share of sales the funder is owed. It's usually collected as a fixed daily or weekly debit meant to match that share.
- Reconciliation. The clause that lets you ask for the debit to be adjusted when actual receivables drop.
Fees sit on top of those four. Fees are often taken out of the purchase price. So the amount that lands in the account is less than the headline.
What is a factor rate?
A factor rate is a multiplier that sets the purchased amount as a fixed multiple of the purchase price. On a $50,000 purchase price at a 1.35 factor, the purchased amount is $67,500, and the cost is $17,500 no matter how many weeks collection takes. Because the dollar cost is fixed, a shorter collection period means a higher annualized cost. Our Factor rate versus APR guide walks through that. How the read shifts by trade is on the Industries page, and common reasons owners apply are on the Uses page.
What is a holdback?
A holdback is the share of sales the funder buys. It collects that share until the purchased amount is paid. Some funders collect it as a true split of card sales. Many debit a fixed amount instead that is meant to track that percentage, which is why the reconciliation clause matters. The Holdback guide has worked examples.
Is a merchant cash advance a loan?
A merchant cash advance is not written as a loan; it's written as a purchase of future receivables. New York's Appellate Division, in LG Funding v. United Senior Properties of Olathe, said courts weigh three things. Is there a reconciliation clause? Is the term finite? What can the funder do if the merchant goes bankrupt? How a particular contract holds up depends on its real terms, so a lawyer should read yours. The longer treatment is in Is an MCA a loan.
What the FTC tells small businesses to check
The Federal Trade Commission tells small businesses to study an offer before signing. Check if it needs a personal guarantee. Find out what happens if a payment is missed. Get the answers in writing. It also says a salesperson rushing you is a reason to slow down. We build the same questions into the Compare offers page.
Between accepting an offer and the first debit
Between acceptance and the first debit, the funder runs final checks, sends the contract, and wires the net funded amount. The first remittance usually starts on the next business day after funding.
Verification before the money moves
Funders verify what your file and statements claim before they release money. The checks vary, and each funder sets its own list.
The call confirming business details
Many funders call the owner to confirm the business details, the use of funds and any existing advances. Answers that match your file keep your file moving.
Read-only bank access or a fresh statement
Some funders ask for read-only access to the business bank account, or a fresh statement pulled the same week. They want to see that nothing changed since your file was read.
A new advance found at the last minute
Sometimes a bank check finds a new advance funded after the last statement. That often stops the deal until it's disclosed and priced in. List every position up front to avoid that.
Landlord and supplier checks
Some funders confirm rent status with the landlord or check a major supplier relationship. Owners should know those calls may happen.
What owners ask first
How does a merchant cash advance work?
A merchant cash advance sells a portion of future card or deposit revenue for cash today. You receive funds, then repay through fixed drafts or a holdback until the purchased amount is collected. Afterfirst shops funders, shows payback, payment, and term side by side, and you choose. Applying costs you nothing, and Afterfirst MCA charges you no fee.
How is a merchant cash advance repaid?
A merchant cash advance is not repaid in the loan sense; the funder collects the purchased amount from the business's receivables. Collection usually happens by fixed daily or weekly ACH debit from the business bank account. Some older structures take a percentage of each card batch instead.
What happens to the remittance if sales slow down?
The reconciliation clause lets the business ask the funder to reset the debit. The new debit matches the agreed share of real sales. The funder will ask for bank statements to show the drop. If an agreement has no workable reconciliation process, that is worth raising with a lawyer before signing.
Does paying a merchant cash advance off early save money?
Often it doesn't, because the cost is set by the factor rate rather than by time. Some funders offer an early payoff discount, and it will be stated in the contract if so. Ask for the prepayment terms in writing before you sign.
Is a personal guarantee part of a merchant cash advance?
Many MCA contracts include a guaranty from the owner. It often covers the owner's promises about how the business acts, not the sales themselves. The exact wording varies by funder and matters a great deal. Read the guaranty section on its own, and have counsel review it if the language is unclear.
Sources
- Federal Trade Commission, Lesley Fair, "Back to business #3: Looking for small business financing?"
- LG Funding, LLC v United Senior Props. Of Olathe, LLC, 181 AD3d 664 (2d Dept)
Afterfirst is not a funder; all offers are subject to funder underwriting.
What happens after you apply
Apply
Send one free application online or by phone. A person on our team reads it before any funder sees it.
Review
We call you, to fill gaps and confirm bank statements.
Offers compared
We shop your file with funders that fit and show every offer side by side: payback, payment, and term.
You choose
Pick an offer or walk away. Nothing is final until you sign the funder's contract.
Funding
Once you sign, the funder sends the money straight to your business bank account.
Send one file.
See what fits.
Call 877-FUND-654 with questions.