If you are considering a merchant cash advance (MCA), compare the contract’s net proceeds, total repayment, payment mechanics, fees, guarantees and collection terms—not just the amount offered or the payment quoted. An MCA generally provides a business with funds in exchange for a larger amount tied to future receipts, but the details depend on the agreement.
What a merchant cash advance is
The Federal Trade Commission (FTC) describes MCA providers as purchasing a fixed amount of a small business’s future receivables. In exchange, the business receives an advance and repays the agreed amount through collections that may be based on daily revenue. The FTC’s staff perspective describes these as high-cost, short-term advances, but the structure and wording of a particular offer must be checked in its contract.
An MCA is not comparable to another offer based on its label alone. The FTC notes that small-business financing products use inconsistent terms, which can make offers difficult to compare side by side. Read the amounts, payment rules and remedies in the actual agreement rather than assuming that two products described similarly work the same way.
How repayment and cost work
Advance, factor charge and total repayment
The provider advances funds and adds a charge, often called a factor charge. The FTC’s 2020 staff perspective described this charge as often between 20% and 50% of the advanced amount. That is a historical description, not a current market average or a universal rate; the charge and total owed for an individual offer may differ.
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Focus on the dollars involved: how much will be deposited after deductions, and how much must be repaid in total? A quoted advance can overstate the cash available if fees are withheld before disbursement. Record the net proceeds and total repayment separately so you can compare offers on the same basis.
Payment schedule and sales adjustments
Collections may be made through daily withdrawals or payments linked to a share or estimate of daily revenue. In the structure described by the FTC, daily payments are supposed to move with daily sales. Do not assume that happens automatically: check whether the contract provides a reconciliation or adjustment mechanism, how to request it, what records are required and when an adjustment takes effect.
The FTC’s 2020 perspective said MCA repayment typically occurred within a few months to one year. It also noted that some estimated APRs discussed were in the triple digits. These are dated contextual observations, not a guaranteed term or a current average. To understand an offer’s cost, use its actual repayment amount, timing and fees rather than treating a historical range as the price of your contract.
Compare offers by the terms that affect your business
Put each offer’s written terms into a comparison before signing. If a term is missing or unclear, ask the provider to explain it in writing. The FTC warns that inconsistent terminology can frustrate apples-to-apples comparisons.
| What to compare | What to establish |
|---|---|
| Net proceeds | The amount actually deposited after every withheld fee or deduction. |
| Total repayment | The full amount the business is obligated to pay, including charges specified in the agreement. |
| Payment amount and schedule | How much is withdrawn, how often, and on what dates or business days. |
| Revenue adjustment | Whether payments vary with sales and, if so, the reconciliation process, required documentation and timing. |
| Fees | Every fee, when it is charged, whether it is withheld upfront and whether any additional fees can apply. |
| Guarantees and security | Any personal guarantee, lien or collateral, and exactly what property or obligations it covers. |
| Missed payments and collection | Default triggers, consequences of a missed or failed withdrawal, and the provider’s collection or judgment provisions. |
Check the agreement and the provider’s claims
Before accepting an offer, confirm the key terms in the agreement rather than relying on a sales explanation. Ask the provider to reconcile any difference between the amount described as funding and the amount you will receive, and between a claimed payment adjustment and the contract’s actual procedure.
FTC enforcement announcements describe allegations in specific cases, not findings about every MCA provider. In a 2020 announcement, the FTC alleged that Yellowstone Capital and related defendants misrepresented funding amounts and fees and made unauthorized withdrawals after businesses had repaid. A separate 2022 FTC announcement concerned allegations involving misrepresented guarantees, fees and funding, as well as abusive collection practices. The FTC described a $675,000 settlement in the RAM Capital Funding and Tzvi Reich proceeding; that amount is specific to that case, not an industry statistic.
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These cases make it especially important to verify what a provider says about repayment status, withdrawals, guarantees and fees against the written contract and your own payment records. If a provision about a personal guarantee, lien, default or collection remedy is unclear, consider getting qualified legal advice before signing.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Written checklist before you sign
- Confirm the net amount the business will receive after deductions.
- Confirm the total repayment amount and list every fee.
- Get the withdrawal amount, frequency and schedule in writing.
- Check whether payments adjust when sales change, and document the reconciliation process and timing.
- Identify any personal guarantee, lien or collateral and the obligations it secures.
- Read the default triggers and the collection or judgment provisions.
This checklist is general contract-comparison guidance, not individualized legal or financial advice. An MCA’s suitability depends on its actual terms and the business’s circumstances; the cited FTC materials do not establish that one financing type is best for every business.
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