Merchant cash advances with the full cost shown

The full guide

A sale of future receivables, not a loan

With a merchant cash advance, a funder pays you a lump sum, called the purchase price, and buys a fixed amount of your future receipts, called the purchased amount. You deliver that amount through remittances until it is paid in full. There is no interest rate. The price is set by a factor rate: a $50,000 advance at 1.35 buys $67,500 of your future sales.

Because it is a purchase, a true MCA has no fixed term. Remittances are supposed to track your sales, and the contract should give you a right to reconciliation, so your payments fall when sales fall. Funders describe the product this way themselves. One funder we track calls its contract a purchase and sale agreement and states plainly that it is not a loan.

The label does not settle the question. In January 2025, the New York Attorney General announced a settlement worth more than $1 billion with Yellowstone Capital. The office alleged that its "purchases" pulled fixed daily amounts over short terms and that owners almost never qualified for the reconciliation refunds the contracts promised, so the deals worked as loans at rates of up to 820% a year. This page is general information, not legal advice. Our MCA basics guide goes deeper.

What a 1.35 factor really costs

Openbook estimates APR from the cash flows. You receive the advance, net of any fee taken at funding, and pay the remittance each business day. We solve for the daily rate that makes those payments worth what you received, then multiply by 252 business days. The same deal paid in 35 weekly payments of $1,928.57 comes out near 92%, because each dollar stays in your account a little longer.

The dollar cost stays at $17,500 whatever the term, but the APR moves. Squeeze that cost into 6 months and the estimated APR is about 126%. Stretch it over 12 months and it is about 63%. A factor rate tells you the price in dollars, not how expensive the money is. Our factor rate vs APR guide walks through the method.

Fees move the number as well. One funder we track publishes a 2.5% underwriting fee and a $50 monthly administration fee on its advances. A fee taken at funding means you receive less but still owe the full payback. Paste any offer into the offer decoder to see the effect.

Published factor rates among funders we track run from about 1.10 to 1.50. New York and California now require many providers to disclose an annual percentage rate on sales-based financing offers, and Openbook shows an estimated APR on every offer we present. The state law hub covers which states require what.

Holdback or fixed daily debit

With a holdback, your card processor splits each settlement and sends the funder its share before the rest reaches you. One broker we track describes holdbacks of 5% to 15% of daily card or platform sales. At 10%, a $1,500 day sends $150 to the funder and a $3,000 day sends $300, so payments rise and fall on their own.

Other funders collect by fixed ACH: the same debit from your bank account each business day or each week, sized from your average deposits at approval. In the reference example, that is $401.79 every business day. The fixed amount is meant to approximate the agreed percentage of your receipts. In a slow month it can take a much larger share.

Reconciliation keeps a fixed debit honest

When sales drop, you send recent bank statements and ask the funder to adjust. One funder we track describes 2 forms of relief: a temporary payment adjustment, and a refund when past payments exceeded the agreed percentage. Before you sign, find out how often you can ask, which documents count and how quickly the funder must answer. The reconciliation rights guide covers what to send and when.

The UCC-1 lien and the performance guarantee

The funder can file a UCC-1 financing statement with your state. Under the Uniform Commercial Code, the filing names you, names the funder and indicates the collateral, and that indication can simply say "all assets." A blanket lien tells future lenders that someone already has a claim on your receivables, which can slow new financing until the lien is released. One funder we track says it reserves the right to file a UCC if you breach the agreement, stack another advance or default.

The personal guarantee in a true MCA is a guarantee of performance. You promise not to break the contract's covenants, such as moving deposits where the funder cannot reach them or blocking its debits. One funder we track states that if the business has no revenue, the owner is not personally responsible, as long as the owner did nothing to keep receipts from the funder. Read which events trigger your guarantee. If it applies whenever sales fall short, you carry loan-like risk under a sales contract.

Watch for a confession of judgment, a signed statement that lets a funder get a court judgment without a lawsuit. In 2022 the FTC settled with RCG Advances over allegations that it told owners no personal guarantee was required, then used guarantees and confessions of judgment to seize assets. See the confessions of judgment guide.

When an MCA fits, and when it hurts

Good fits have a clear payback. A walk-in cooler dies in July and a restaurant needs it replaced this week. A retailer buys Q4 inventory in September and sells through it by December. In both cases the money buys something that produces sales soon, and the remittances end once the purchased amount is delivered.

Poor fits repeat. If you need an advance for this month's payroll and again next month, the cost stacks up with every renewal. Taking a second advance to cover the first is how owners end up with 3 or 4 daily debits, so read about stacking risks before you sign a second position. If you qualify for a business line of credit or a term loan, compare its APR with the advance's estimated APR before you choose.

Openbook's job is to put the numbers side by side. You apply in about 3 minutes with no SSN and no bank login, so applying does not affect your credit. A funding specialist reviews your last 4 months of statements, and we name every funder before we submit. Offers often come back within 1 to 2 business days of complete documents, each shown with total payback, cost in dollars, payment, term and estimated APR. You choose one or walk away.

Pros and cons