Definition
A lump sum repaid from a share of future sales, often daily.
Why it matters
MCAs are usually far more expensive than factoring.
Where it shows up in a deal
An MCA usually turns up in diligence rather than in a proposal: daily or weekly ACH debits on the bank statements and a UCC filing nobody mentioned. Because an MCA is documented as a purchase of future receipts, its filing can cover the same accounts a receivables funder needs, and it has to be resolved before funding.
What it affects
- Daily debits remove the cash a receivables facility is meant to supply.
- An MCA filing over receipts can block the first-position filing a factor requires.
- Taking a second or third advance while one is outstanding is a default under most MCA contracts.
- Payoff letters and lien terminations add days or weeks to a funding timeline.
A worked example
A $100,000 advance at a 1.35 factor rate repays $135,000 - $35,000 of cost - over roughly six months of daily debits. Because the balance amortizes the whole time, the annualized cost is a multiple of 35%. Financing $100,000 of invoices at 1.5% per 30 days for six months costs $9,000 if the full amount stays outstanding throughout.
The common mistake
Related terms
- Invoice FactoringSelling unpaid invoices to a factor for an immediate advance.
- UCC-1 FilingA public notice that a lender has a security interest in a business's assets.
- LienA legal claim on an asset as security for a debt.
- Cash FlowThe net movement of cash into and out of a business over a period.
Questions about how merchant cash advance affects your facility?
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