How an MCA works
A provider gives you a lump sum today in exchange for a fixed amount of your future revenue. Repayment comes either as a fixed daily or weekly ACH debit, or as a holdback percentage of each day's card sales. Because it is structured as a sale rather than a loan, usury laws and most lending regulations do not apply, which is why approvals are fast and requirements are low.
What it really costs
Providers quote a factor rate. A $50,000 advance at a 1.35 factor means you repay $67,500. If that takes nine months, the effective APR is roughly 90%. If the provider shortens the term by increasing the daily debit, the APR goes up, not down. Use our factor rate to APR calculator before accepting any offer, and ask for the total repayment amount in writing.
When it makes sense
Rarely, and only when all three are true: the need is short, the return on the money is far higher than its cost, and no cheaper product will fund in time. An example is a restaurant buying discounted inventory for a confirmed catering contract that pays in 30 days.
The stacking trap
Taking a second advance to cover the daily payments on the first is called stacking. Each advance is priced on gross revenue that is already pledged to the one before it. Most MCA defaults follow this pattern. If you are considering a second advance, talk to the first provider about a renewal or to a debt advisor instead.
Alternatives that accept similar borrowers
- Revenue-based term loans from Fora Financial or Credibly: still factor-priced, but with disclosed terms and credit reporting.
- Lines of credit from Fundbox at three months in business.
- Invoice factoring if you invoice other businesses.
- 0% intro APR business cards if your personal credit is good.