A merchant cash advance is not a loan. It is the purchase of a portion of your future revenue at a discount. That distinction is legal rather than cosmetic, and it is the reason the pricing looks the way it does.
Factor rates are not interest rates
An advance is usually quoted as a factor rate. Take 100,000 at a factor of 1.35 and you repay 135,000. That is presented as 35 percent. But if the repayment period is six months rather than a year, the annualised cost is far higher than 35 percent, because you are repaying the whole amount in half the time.
The shorter the repayment window, the higher the true cost, even though the factor rate has not moved. This is the single most misunderstood number in small business finance.
Daily debits change your cashflow shape
Most advances repay by daily or weekly debit from your account. That is not a detail. It converts a monthly obligation into a constant one, and it removes the flexibility that made the money useful in the first place.
Why they get sold anyway
Commissions on advances are among the highest in the market, and approval is fast because underwriting is thin. A broker paid on volume with no requirement to consider suitability has every incentive to place one. That is the conflict, and it is structural rather than the fault of any individual.
When an advance is genuinely the right answer
- The need is immediate and the alternative is a missed obligation with a worse consequence
- The amount is small relative to monthly revenue
- You have modelled the daily debit against your worst trading week, not your average one
- You have been declined for a secured or invoice-based facility, and you know why
If those are all true, an advance can be a rational choice. What is not rational is taking one because it was the first thing offered and it arrived quickly. If it is genuinely the only fit, we will tell you and we will not take the deal.