How merchant cash advances differ from term loans in structure, cost, repayment, and what happens when revenue drops.
Both MCAs and term loans provide capital, but they are structured very differently.
Structure
- Loan: money is lent and repaid with interest over a set term.
- MCA: usually a purchase of a portion of future receivables, repaid through remittances until the purchased amount is delivered.
Cost expression
Loans quote interest rates (often with an APR). MCAs typically quote a factor rate. Because MCAs often repay quickly, the effective cost can be substantially higher than it first appears.
Repayment
Loans commonly have monthly payments. MCAs commonly collect daily or weekly. Some MCA agreements include reconciliation provisions tied to actual sales.
Regulation and remedies
How lending laws apply to MCAs depends on the contract and state law. Remedies on default — such as guarantees, UCC filings, and in some states confessions of judgment — also vary.
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This article is for general educational purposes only and is not legal, tax, or financial advice. Consult a qualified professional about your specific situation.
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