What it is
A financing firm advances cash and takes a fixed share of each month's revenue (often 1–10%, sometimes more). It keeps taking that share until it has been repaid a set multiple of the amount, called the cap. The cap is often 1.1x to 1.5x, and can reach 3x for riskier businesses. It's common with online stores and software businesses, and usually connects to your bank or sales accounts.
Some merchant cash advances are sold under the same name, so read how repayment actually works.
What it really costs per year
The cap is fixed, so the yearly cost depends on how fast revenue pays it off. On a 1.3x cap, about 51% a year if it's repaid in twelve months, 27% over two years and 18% over three. Faster growth means faster repayment and a higher yearly cost. A higher cap costs more too: 1.5x repaid over two years is about 42% a year.
Work out the yearly cost of an offer you have
How fast the money comes
Decisions often within a day, funding within a few days.
Who qualifies
- Often $15,000 or more in monthly revenue and about a year of history, though it varies by firm; not pre-revenue start-ups.
- Credit and collateral matter less than revenue, and personal guarantees are less common.
Where it breaks
- The share comes off revenue, not profit, so it bites hardest when margins are thin.
- Fast growth shortens payback and raises the yearly cost.
- There's no standard APR, and terms vary a lot between firms.
Compare with
- Bank loans and lines of credit: yearly cost about 7–11%, money in 2–8 weeks.
- Merchant cash advances (MCAs) and processor capital: yearly cost about 23% to over 130%, money in 1–3 days.
- Community raises (Regulation Crowdfunding): yearly cost about 13–25%, money in 1–4 months.