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 daily or weekly sales until a set total, the funded amount times a factor rate, is paid back.
How it works
The total to repay is the funded amount times a factor rate such as 1.4, so a 50,000 dollar advance at 1.4 is repaid as 70,000 dollars, in small daily or weekly increments rather than monthly.
A purchase, not a loan
Structurally an MCA is the purchase of future receivables, priced with a factor rate rather than interest. The cost is fixed at funding, so repaying early does not reduce what is owed unless the funder offers a discount.
How repayment is collected
Either a fixed daily or weekly ACH debit, or split funding where the card processor routes a percentage of each day's sales to the funder. Servicing an MCA book means reconciling thousands of small remittances and catching missed payments fast, which Zolvo automates for merchant cash advance funders.