Loan types
The merchant cash advance, explained without the sales pitch
A merchant cash advance is not a loan. It is the purchase of your future receivables. Here is the real math, the true cost, and when it beats every other option.
A merchant cash advance is the fastest money a small business can get, and the most expensive money a small business can get. Both things are true at once. Most articles about it are written either by someone selling one or by someone who has never funded one. This is written by people who broker them every day.
Here is the honest one paragraph version. A funder gives you a lump sum today. In exchange, you sell them a fixed dollar amount of your future revenue, and they collect it back in small automatic payments until the full amount is paid. There is no interest rate, because legally it is not a loan. There is a factor rate, and the total you owe is fixed the moment you sign.
The math, with real numbers
Say you take $50,000 at a 1.24 factor rate over roughly six months. You do not owe $50,000 plus interest. You owe $50,000 times 1.24, which is $62,000, full stop. That number does not move whether you pay it off in four months or eight.
That is $12,000 for roughly six months of money. Annualize it and you are in the range of a 45 to 60 percent APR, sometimes higher. Anyone who tells you a 1.24 factor is "24 percent" is either confused or counting on you being confused. See how to convert a factor rate to an APR and run your own number.
How you actually pay it back
Repayment is automatic and frequent. There are two common structures, and the difference matters more than most people realize.
- Fixed daily or weekly
- A set dollar amount leaves your account every business day or every week. Predictable, easy to budget, brutal in a slow week.
- Percentage of sales
- A set percentage of daily card volume, called the holdback. It breathes with your revenue, so a slow week costs you less. Usually requires split funding through your processor.
If your revenue is genuinely seasonal, the percentage structure is worth fighting for. If your revenue is steady, fixed payments are usually cheaper because the term is shorter.
What underwriting actually looks at
An advance is underwritten on your bank statements, not your credit report. That is why it funds in a day or two and why credit rarely kills the deal. Three months of statements tell the whole story.
- Average daily balance. The single biggest driver of your offer. A business that ends most days near zero gets a smaller advance no matter what the revenue is.
- Deposit count and consistency. Twenty deposits a month reads like a real operating business. Two large deposits reads like concentration risk.
- Negative days and NSFs. A handful is survivable. A pattern moves you to worse pricing or a decline.
- Existing advances. Every open position shows up in your statements as a daily debit. Funders can see them, so never pretend they are not there.
When an advance is genuinely the right call
There are three situations where an advance beats everything else, and they all share one feature: the money buys something that earns more than the money costs, quickly.
- 01A revenue emergency with a deadline
A truck is down, a lease is due, payroll is Friday. The alternative to expensive money is no business at all. Cost of capital stops being the relevant question.
- 02An opportunity with a short clock
Inventory at a real discount, a job you can only take if you can fund materials this week, equipment at auction. If the return is 3x the cost of the money and lands inside the term, the math works.
- 03A gap you can actually see the end of
You know the receivable lands in 60 days. You need to cover 45. An advance bridges it. This only works if the receivable is real and you have not already borrowed against it.
How it compares to everything else
Speed and cost are the same dial. Every product you can get faster costs more. There is no product that is fastest and cheapest, and any pitch claiming otherwise is a pitch, not an offer.
| Product | Time to funding | Typical total cost | Credit weight |
|---|---|---|---|
| Merchant cash advance | 24 to 48 hours | $8,000 to $24,000 | Low |
| Line of credit | 2 to 7 days | $3,000 to $9,000 | Medium |
| Term loan | 3 to 14 days | $5,000 to $13,000 | Medium to high |
| SBA 7(a) | 30 to 90 days | $2,500 to $6,000 | High |
If you have 30 days and clean credit, an SBA loan or a bank line is simply better and it is not close. If you have 48 hours, the comparison is not between an advance and an SBA loan. It is between an advance and nothing.
The traps worth knowing before you sign
- Stacking. Taking a second advance while the first is open. Two daily debits against one revenue stream is the fastest route to default. See why stacking backfires.
- Confession of judgment. Banned in New York for out of state merchants and restricted elsewhere, but still worth reading for. It lets a funder get a judgment without suing you first.
- No prepayment benefit. With a true factor rate, paying early saves you nothing unless the contract has an explicit early payoff discount. Ask for it in writing.
- Reconciliation you cannot invoke. Percentage deals often promise reconciliation if sales drop. Ask exactly what triggers it and what you have to submit.
What we do with this
Exp Capital Solutions is a broker, not a lender. We do not fund advances ourselves and we do not decide your pricing. What we do is take one file and put it in front of the funding partners most likely to price it well, then show you the offers side by side with the total payback spelled out. If a cheaper product fits your file, we will tell you that too, even though it pays us less.