What Is a Merchant Cash Advance?
An MCA provides a lump sum of capital in exchange for a percentage of future daily credit card sales or revenue. Unlike traditional loans, MCAs use a factor rate instead of an interest rate. The factor rate is multiplied by the advance amount to determine total repayment.
Understanding Factor Rates vs Interest Rates
A factor rate of 1.35 means you repay $1.35 for every $1.00 borrowed — a flat 35% cost regardless of repayment speed. Unlike interest rates, factor rates do not decrease as you pay down the balance. This makes MCAs significantly more expensive than traditional loans.