A Merchant Cash Advance (MCA) is a lump-sum advance against your future revenue, repaid as a percentage of daily sales until a fixed total is paid back. Structurally it's a purchase of future receivables, not a loan. That's a critical distinction: because it's not legally a loan, MCAs avoid interest-rate caps, which is how the implied Annual Percentage Rate (APR) ends up at 50 to 180 percent.
How it works
You receive $50,000 today. The MCA provider charges a factor rate, say 1.35. You owe $50,000 times 1.35 = $67,500 total. They take 12 percent of your daily revenue until that's paid back. If your revenue is steady at $200K per month, $24K per month gets remitted, so payback hits in about 2.8 months. The implied APR is roughly 100 percent.
Factor rate vs APR
Factor rate is the multiple of the advance you repay. Factor 1.35 means $1.35 returned per $1 borrowed, regardless of how long it takes. APR accounts for time, so the same factor rate produces wildly different APRs depending on payback speed. For the conversion math, see our True Interest Cost calculator.
When MCAs make sense
Almost never as primary capital. The narrow use case:
- Time-critical inventory opportunity (must commit this week)
- Margin upside justifies an effective APR of 80 percent or higher
- Conventional capital (line of credit, term loan, Revenue-Based Financing / RBF) is unavailable
- Payback math works inside 3 months
The most common mistake
Stacking MCAs. Brands take one MCA to solve a cash crunch, then a second one to make payments on the first. Daily remittance from both compounds, often consuming 25 percent or more of daily revenue in debt service. Cash velocity collapses and the brand spirals. Always pay off an MCA in full before considering another.
Frequently Asked Questions
how is an mca actually different from a loan?
An MCA is technically a purchase of future receivables, not a loan. That's why MCAs aren't subject to interest-rate caps and end up at 50 to 180 percent implied APR. You remit a fixed percent of daily sales until paid back.
what's a factor rate vs apr?
Factor rate is the multiple of the advance you repay. Factor 1.30 on $50K = $65K total repaid. It ignores time, which means the same factor rate becomes a much higher APR if paid back faster. Always run it through an APR calculator before signing.
when should i ever use an mca?
Rarely. The narrow case: time-critical inventory with payback inside 3 months, margin upside that justifies an 80 percent+ effective APR, and no conventional capital available.
Related Terms
- What is APR vs factor rate?
- What is revenue-based financing (RBF)?
- What is a line of credit?
- What is a term loan?
- True Interest Cost Calculator
Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.
Considering an MCA? Talk to a CFO first — there's usually a better option.