Merchant Cash Advance (MCA)
A merchant cash advance (MCA) is not a loan but a purchase of a business's future receivables or sales at a discount. The funder advances a lump sum and is repaid by collecting a fixed amount or a percentage of the business's daily or weekly sales until a set total, the funded amount times a factor rate, is paid back.
How a Merchant Cash Advance Works
In an MCA, a funder gives a business a lump sum today in exchange for a slice of its future sales. The total to repay is the funded amount multiplied by a factor rate, a fixed multiplier such as 1.4, so a 50,000 dollar advance at 1.4 is repaid as 70,000 dollars. Repayment comes in small, frequent increments, daily or weekly, rather than monthly.
It Is a Purchase, Not a Loan
Legally and structurally an MCA is the purchase of future receivables, not a loan, which is why it is priced with a factor rate rather than an interest rate and is not usually subject to the same usury and lending rules. The practical consequence is that the cost is fixed at funding: repaying early does not reduce what is owed unless the funder offers a discount.
How Repayment Is Collected
Funders collect either by a fixed daily or weekly ACH debit, or by split funding, where the card processor routes a set percentage of each day's sales to the funder before the rest reaches the merchant. Split funding ties repayment to actual sales volume; fixed ACH does not.
Servicing an MCA Book
Because repayment is high-frequency, servicing an MCA portfolio means reconciling thousands of small remittances, catching missed or bounced payments immediately, and monitoring performance against the expected pace. Zolvo automates that for merchant cash advance funders, see the MCA servicing software guide.
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