What a Merchant Cash Advance actually is.
A plain-English primer for owners who signed something on a Friday afternoon and want to understand it on a Monday morning.
It's not a loan
Technically, a Merchant Cash Advance is a purchase of future receivables. The funder gives you a lump sum today in exchange for the right to collect a fixed percentage of your future sales until a pre-agreed total is recovered. That distinction matters — it's why MCAs escape most state usury caps and why the math looks nothing like a bank term loan.
The three numbers that define it
- Purchase price — what they give you. e.g. $100,000.
- Specified amount / RTR — what they collect. e.g. $140,000.
- Factor rate — RTR divided by purchase price. e.g. 1.40.
A 1.40 factor rate on a 6-month hold works out to an effective APR north of 150%. On a 4-month hold, it's closer to 300%. Most owners never see this number at signing.
How you pay it back
Almost always via daily ACH debits. The funder pulls a fixed dollar amount (or, on "true" holdback MCAs, a percentage of daily deposits) from your bank account every business day until the RTR is collected. Five days a week, every week, no calendar adjustments.
Where the overpayments come from
- Holdback miscalculation — revenue-linked debits that don't adjust when revenue drops.
- Stacking — taking on a second MCA without reconciling the first, so both pull simultaneously against the same deposits.
- Reconciliation neglect — contracts that promise quarterly reconciliation to true revenue but never actually execute it.
- Post-RTR debits — funders continuing to pull after the specified amount has been collected. Rare but not mythical.
What you can do about it
Every state's UCC Article 9 and consumer lending framework provides some recourse — reconciliation demands, factor-rate challenges, and in severe cases usury claims. The hard part isn't the law; it's the math. You need a daily-by-daily ledger to make the argument, which is exactly what Helm builds.