Merchant cash advance.

In plain English

If you are weighing a merchant cash advance, you have the right to see its true cost before you sign, and working out that cost is the first protective step. A merchant cash advance, or MCA, gives a business a lump sum in exchange for a slice of its future card sales, repaid through automatic daily or weekly debits. It is fast and easy to qualify for, which is why struggling businesses turn to it, but it is one of the most expensive ways to raise money. Providers quote a factor rate rather than an interest rate, which hides how high the true annualized cost is, often well into the triple digits. The daily debits can also starve a business of the cash it needs to operate.

01Why it matters

MCAs are marketed as quick help but can carry effective annual rates in the triple digits, so recognizing one and calculating its real cost protects a business from a debt spiral.

02The math, step by step

A business takes a 20,000 dollar advance and must repay 26,000 dollars through daily debits over a few months. The 6,000 dollar cost over that short term works out to an effective annual rate far above what any bank loan would charge.

03What this is NOT

04Receipts

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