MCA Terms Made Simple: What You Need to Know Before You Apply
Thinking about a merchant cash advance? Smart move to read up first. MCAs don’t work like bank loans, and the lingo can get confusing fast.
Here’s the breakdown of every term you’ll see in your agreement, with real examples. Let’s make sure there are no surprises.
💵 Advance Amount
This is the actual cash that lands in your account. Simple as that.
🔢 Factor Rate
MCAs don’t use interest rates. They use a factor rate instead. It’s usually between 1.1 and 1.5.
💰 Payback Amount
This is your advance amount times your factor rate. It’s locked in on day one.
Important: Even if you repay early, you usually still owe the full payback amount. MCAs don’t work like loans with daily interest.
📊 Holdback / Retrieval Rate
This is the % of your daily or weekly sales that automatically goes toward repayment.
📅 Daily or Weekly Payment
Some MCAs pull a fixed amount via ACH every day or week. Others take a % of sales, so payments go up and down with your revenue.
⏱️ Term – How Long Will This Take?
There’s no fixed due date like a loan. Instead, you’ll get an estimate: usually 3 to 18 months. If sales are slow, it takes longer. If sales are great, you’re done faster.
💳 Split Funding
Common for restaurants and retail. Your credit card processor splits each transaction — part goes to you, part goes straight to the funder before it hits your account.
🏦 ACH Debit
Fixed payments pulled directly from your bank account on a set schedule. This is the most common setup if you don’t do a ton of card sales.
📍 Position – Who Gets Paid First?
If you have multiple advances, “position” matters:
- First position: This funder gets paid first. Lower risk for them.
- Second position: This funder is behind the first one. Higher risk = usually higher cost.
🔄 Renewal / Refinance
After you’ve paid off part of your advance, the funder might offer you a new one. They’ll use it to pay off the old balance and give you fresh cash.
⚠️ Stacking – Be Careful Here
This means taking advances from multiple companies at once. You get more cash, but your daily payments multiply too. It can get risky fast.
🤝 Reconciliation
The good MCAs will adjust your payments if your revenue drops. You have to ask and prove it with bank statements. Not all funders offer this, so check.
📝 Use of Funds
MCAs are flexible — inventory, payroll, marketing, renovations. But the funder will probably ask what you plan to do with the money.