01Definition
A merchant cash advance is not a loan.
Typical factor rate
It is the purchase of future receivables at a discount. A funder pays you cash today for an agreed amount of revenue you have not yet earned, then collects that amount back through fixed weekly ACH debits. Everything else about an advance follows from that one structural fact.
02The mechanic
You sell future receivables. You receive the cash today.
A funder buys an agreed amount of your future sales and pays you for them now, at a discount. You deliver that amount back through an automatic weekly ACH debit until the agreed total has been collected. Then it ends.
The price is written as a factor rate, a multiplier applied to the advance rather than a rate applied over time. Multiply the amount advanced by the factor and you have the total the funder will collect. Where you land inside the 1.20–1.50 range depends on your deposits, your trading history and how cleanly the file reads.
An origination fee of 2%–10% is normally deducted at funding, so the money that arrives is smaller than the number the factor was applied to. That gap is the most common surprise in this market, and it is the reason the only figure worth comparing is total dollars collected against dollars actually received.
Because it is a purchase and not credit, approval leans on the health of your deposits rather than on your credit file alone. That is what makes an advance fast. It is also what makes it expensive.
The moving parts
- Advance
- $15,000 to $20,000,000
- Factor rate
- 1.20–1.50
- Term
- 5–18 months
- Origination fee
- 2%–10%, deducted at funding
- Remittance
- Fixed weekly ACH debit
Ranges, not offers. Terms are set by the funder on the strength of the file.
03Worked example
One hundred thousand dollars, step by step.
The arithmetic is the whole product. There is nothing behind it and nothing else to model.
Take an advance of $100,000 at a factor of 1.35 over 10 months. The factor is applied once: $100,000 × 1.35 = $135,000. That total is fixed from the day you sign.
10 months is roughly 43 weekly debits, so $135,000 divided across those weeks lands at about $3,100 to $3,150 leaving the account every week.
Now add the fee. At a 2%–10% origination fee the money that reaches your account is less than $100,000, while the amount collected stays at $135,000. Cost is always the second number minus what you actually received. It is never the second number minus the headline advance.
- 01Advance amount$100,000
- 02Factor rate applied× 1.35
- 03Total to be collected$135,000
- 04Term10 months
- 05Weekly ACH debitsabout 43
- 06Each debit$3,100–$3,150
Collected in full
Each ACH debit
The discount, before any origination fee
Illustration only, using the worked example. Not an offer of finance.
Run your own numbers04Structure
Why the distinction is not a technicality.
The purchase structure decides how an advance is priced, how it is documented, and which body of law it sits under. Five consequences follow directly.
- 01
There is no interest rate.
The price is a multiplier agreed once, at the start. Nothing accrues and nothing compounds. If collection runs a few weeks long, the total does not grow.
- 02
There is no APR, by construction.
An APR describes the cost of credit across time. A purchase has a price, not a rate. You can annualize the cost of an advance, and the number you get is large. That is precisely why total dollars is the honest comparison here, not a rate.
- 03
Nothing amortizes.
There is no split between principal and interest, because there is no principal. Each weekly debit simply reduces what remains of one agreed total.
- 04
No specific assets are pledged.
Your premises, vehicles and equipment are not put up as security. A UCC filing covering business receivables is common, and so is a performance guarantee signed by the owner. Ask which applies to your agreement before you sign it.
- 05
It is a commercial transaction.
The agreement is between two businesses, for a business purpose. That is the fact that places it outside consumer credit law. That has consequences worth stating plainly.
What that also means
The protections built around consumer credit (standardized rate disclosure, cooling-off periods, usury ceilings) were written for consumer loans and generally do not reach a commercial purchase of receivables. Being outside that regime is not a loophole and it is not a scandal. It is simply the trade you are making.
Here, the contract is the protection. Before you sign, confirm the total to be collected, the exact weekly amount, the fee deducted at funding, the net figure that reaches your account, and what an early payoff actually saves you.
- Read the total collected, not the factor rate
- Read the net funded amount, not the advance
- Read the early payoff terms before you need them
05Comparison
Three ways to fund the same gap.
A bank term loan is almost always the cheaper instrument, and a line of credit is usually the most flexible. This table exists so you can see clearly where an advance is, and is not, the right tool.
| Attribute | Merchant cash advance | Bank term loan | Business line of credit |
|---|---|---|---|
| What it is | The purchase of an agreed amount of future receivables at a discount. | Credit extended for a fixed term and repaid with interest. | A revolving limit you draw against and repay as you need it. |
| Speed | Days. Same-day funding is available on qualified files. | Weeks to months. Financials, projections and underwriting committees. | Weeks to open. Immediate once the facility exists. |
| Cost basis | A factor of 1.20–1.50 plus an origination fee of 2%–10%. Fixed in dollars, not in time. | An interest rate with a disclosed APR. Materially cheaper than an advance. | Interest on the drawn balance only, plus facility and unused-line fees. |
| Security | No specific assets pledged. A UCC filing on receivables is common. | Usually secured on assets, commonly with a personal guarantee. | Usually secured or guaranteed, with covenants attached. |
| Repayment | A fixed weekly ACH debit until the agreed total is collected, normally over 5–18 months. | Fixed monthly installments, often over several years. | Interest monthly. Principal repaid on your own schedule, within the limit. |
| Qualification weighting | Bank deposits and trading history first. Credit from 500–600+ is considered. | Credit, filed financials, collateral and ongoing covenants. | Credit and financials, plus conditions that continue after opening. |
The bank column is written to be attractive because it usually is. If a bank or a line of credit is open to you and the timing works, that is the cheaper answer and you should take it.
Rates and terms in detailWhat an advance buys is access and speed: no collateral to pledge, no covenants to keep, weighting on deposits rather than on a credit score, and a decision measured in days. Those are real advantages. They are also the entire thing you are paying the premium for.
06Vocabulary
Eight words, in plain language.
Most of the confusion in this market is vocabulary rather than complexity. None of these terms is difficult once somebody writes it down.
- Factor rate
- A multiplier, not an interest rate. Multiply the advance by the factor and you have the total the funder will collect. The usual range is 1.20–1.50. It is agreed once and does not accrue, which is why time alone neither adds to it nor takes from it.
- Origination fee
- A fee of 2%–10% of the advance, deducted at funding. The factor is applied to the full advance, so the money that reaches your account is smaller than the number the pricing was built on. Ask for the net figure in writing.
- Term
- The expected time to collect the agreed total, normally 5–18 months. Read it as a pace rather than a maturity date: what is fixed in the contract is the total collected and the weekly amount.
- Weekly ACH remittance
- The fixed amount debited automatically from your business bank account each week until the total is collected. It leaves whether or not the week was a good one. Model it against a bad week, not an average one.
- Stacking
- Taking a second advance while a first is still being collected. Most agreements restrict it, funders can usually see it in your statements, and it is the most reliable way to turn a manageable obligation into an unmanageable one.
- Early payoff discount
- A reduction in the total to be collected if you settle ahead of schedule. Major discounts are available, but the terms vary by funder and by file. Get the payoff schedule in writing before you sign, not after.
- Stips
- Short for stipulations: the documents a funder requires before funding. Usually 3 to 6 months of business bank statements, owner identification and a voided check.
- UCC filing
- A public notice filed against the business, typically covering receivables. It does not put your premises, vehicles or equipment up as security, but it is visible to other funders and can shape what you are offered next. Ask whether one will be filed.
07The honest version
Expensive, and sometimes exactly right.
Everything above leads to one conclusion, and it is better said out loud than buried in a footnote.
An advance costs materially more than a bank term loan or a line of credit. On the worked example, $35,000 on $100,000 over 10 months is not a small number, and the origination fee sits on top of it. No amount of framing changes that.
It does not follow that an advance is wrong. It follows that it is a specific tool for a specific situation: when the opportunity or the problem is in front of you now, when a bank will take eight weeks or will decline outright, and when the cash flow genuinely carries a fixed weekly debit in a bad week as well as a good one. Speed and access are what you are buying, and they are priced accordingly.
If you qualify for a bank loan or a line of credit, take it. If you do not, or if the timing makes that impossible, an advance is a legitimate instrument, provided you have read the total, the weekly amount and the payoff terms, and provided the business can carry them.
Before you sign anything
- The total dollars to be collected
- The net amount that reaches your account
- The exact weekly debit and the day it runs
- The early payoff schedule, in writing
- Whether a UCC filing or a guarantee is involved
Expensive money that arrives quickly is still expensive money.
Now find out what the numbers would be for you.
Tell us what the business does and what you need. No credit pull to get an indication, and nothing sensitive is collected on this site.
Atlas Business Capital is a broker. We arrange merchant cash advances with funders and do not fund them ourselves, and we are not a bank. The agreement is with the funder. Operated by Veilon AG.
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