What a merchant cash advance actually is, term by term

The words "loan," "interest," "borrower" and "lender" appear nowhere in a standard merchant cash advance agreement. Their absence is not an oversight and not a style choice. It is the entire point of the document.

What the agreement says instead is that a funder has bought a fixed dollar amount of your future revenue at a discount, and will collect that amount out of your receipts until it has been delivered in full. A purchase, not a debt.

That single drafting choice explains why there is no interest rate on your paperwork, why paying it off early saves you nothing, why the default section says almost nothing about missing a payment, and why the company on the other end can move faster than any bank.

The terms that control your agreement

Pull the contract up. Nearly every MCA agreement in circulation uses the same skeleton, and these terms are capitalized somewhere on page one.

Purchased Amount

The total dollars of future receivables the funder bought. This is the number you have to deliver. It never goes down for any reason other than payments you make, and it does not accrue or shrink over time.

Purchase Price

What the funder paid you for it. The gap between the Purchase Price and the Purchased Amount is the entire cost of the deal, expressed in dollars rather than as a rate. Divide one by the other and you have the factor rate.

Specified Percentage

The share of your daily receipts the funder says it is entitled to. On paper this is the mechanism: the funder takes 12 percent of what comes in. In practice most agreements then fix a dollar amount, and the percentage becomes a benchmark you can point to during a reconciliation request rather than something your bank actually calculates each morning.

The Remittance

The fixed daily or weekly debit. This is the number that runs your life. It is usually set by dividing the Purchased Amount by an estimated number of business days, using revenue assumptions taken from your bank statements.

Reconciliation

The clause that is supposed to protect you. If revenue drops, a reconciliation provision lets you ask the funder to recalculate the debit so it stays proportional to actual receipts. Some contracts make this automatic and monthly. Most make it a written request you have to initiate, with supporting statements, inside a narrow window. If you have never used yours, read it tonight. A reconciliation clause you never invoke does nothing for you.

Events of Default

Read this section twice. In most MCA agreements a slow month is not by itself a default. What triggers default is conduct: changing your depository bank or payment processor without consent, interfering with the ACH, taking additional financing without written approval, closing or selling the business, or misstating revenue in the application. That last category matters, because it is also where a performance guaranty turns into personal exposure.

The Personal Guaranty

Usually a guaranty of performance rather than of payment. It says you did not sabotage the deal. Breach the conduct terms above and the funder can pursue you individually.

Alongside the agreement, the funder almost certainly filed a UCC-1 financing statement under Article 9 of the Uniform Commercial Code, putting a public lien on your receivables. That filing is often why your bank or SBA lender went quiet.

Who is actually on the other side

There are usually three or four parties behind one advance, and knowing which is which decides who you call when something needs to change.

The broker, sometimes called an ISO. The person who sold you the deal. He earns points on funded volume, shops your application to several funders at once, and has no authority over your account after the wire clears. Sending a hardship request to your broker is the most common reason a request goes nowhere.

The funder. The company named as purchaser in the agreement and as secured party on the UCC-1. This is the entity with authority to modify anything.

Syndicate participants. Many advances are funded by several parties taking a share of one deal. It is why a straightforward request to lower a debit can sit for a week. Someone has to poll the participants.

The servicing or collections desk. The people who run the ACH file and answer the phone. Front line reps generally cannot approve a change to the remittance, though they can log a request and route it.

Put anything that matters in writing, addressed to the funder named on the agreement, and keep the confirmation.

A hypothetical agreement, priced out

Numbers make the structure obvious. The figures below are hypothetical and used only to show the mechanics.

A commercial landscaping company takes an advance. Purchase Price $85,000. Purchased Amount $108,800, which is a 1.28 factor. A $2,550 origination fee comes out of the wire, so $82,450 actually arrives. The Specified Percentage is 12 percent, and the daily remittance is set at $800 over an estimated 136 business days.

• Cost in dollars: $23,800, fixed at signing
• Cost as a share of what actually hit the bank: $26,350 on $82,450, or 32 percent
• Elapsed time: just over six months
• Approximate annualized cost on the net funded amount: about 107 percent

That last line appears nowhere in the folder. Federal rules that force an APR onto a rate sheet, the Truth in Lending Act and Regulation Z at 12 CFR 1026, apply to consumer credit. Business financing sits outside them. Several states have closed the gap on their own, including California under SB 1235, New York under its Commercial Finance Disclosure Law, and Utah, Virginia and Florida under their own commercial financing disclosure statutes. Whether you got a rate disclosure depends on where the deal was written.

Why the purchase framing is not just paperwork

Three practical consequences fall out of it.

Early payoff does not save you money. There is no unearned interest to rebate. Deliver the Purchased Amount in month two instead of month seven and you still pay the full $108,800, unless the funder voluntarily offers a discount to get its capital back sooner.

A slow season does not reduce what you owe. It only stretches the term, and only if reconciliation is actually working. If the debit stays fixed while receipts fall, the advance quietly consumes a larger share of revenue every week.

The remedies are commercial, not consumer. Collection rules written for consumer debt do not apply here. What applies is the contract, the UCC filing, the guaranty, and in some states a confession of judgment if one was signed.

Three signs the structure has turned against you

1. The daily debit is now a larger share of deposits than the Specified Percentage written into your own contract.
2. You are timing payroll around the debit calendar instead of the other way around.
3. Someone has offered you a second position to cover the first one. That is the moment the arithmetic stops being survivable, and it is worth understanding why one advance turns into four before you sign anything.

What the agreement does not say

Three absences are worth noticing, because owners assume the opposite.

There is no maturity date. The estimated term on the summary page is an assumption built from your bank statements, not a deadline the funder is bound by and not one you can hold it to.

There is no grace period in most drafts. A returned debit is an event on the day it happens, and re-presentment often follows within a business day or two.

And there is no requirement that the funder tell you where you stand. Balances, remittance history and payoff figures are available on request, but they are not pushed to you. Ask for a written balance statement quarterly and file it.

Four clauses that decide what happens next

Because this is a commercial contract rather than a regulated credit product, the document itself is the boundary of what anyone can do about it. That makes the useful hour the one spent inside the agreement rather than around it. Find these four and read the sentences, not the headings.

The reconciliation clause. Confirm whether it runs automatically or only on request, what it requires you to attach, and how many days you have to file it. A clause that recalculates monthly on its own and a clause that grants one discretionary review are two different products sold under one word.

The Events of Default list. Mark every item describing something you might do without thinking of it as a breach: taking a second advance, moving your depository account, switching processors, adding a merchant services provider. Those lines are where a business problem turns into a personal one through the guaranty.

The guaranty itself. Read the operative sentence and work out whether it is a guaranty of performance or a guaranty of payment. The two look interchangeable on the page and are not.

Choice of law and venue. This names the state whose commercial law governs the agreement and the county where a dispute would be heard, and it is frequently nowhere near you. That one line shapes your realistic options long before anyone discusses a number.

If a page or an addendum is missing from your copy, ask the funder in writing for the complete executed set, including the ACH authorization, and keep the response.