Ten Things About MCAs Most Owners Never Hear (2026)

The merchant cash advance (MCA) industry is based on two huge lies: that merchant cash advances are not loans, and that confessions of judgment are standard loan terms.

MCA companies avoid traditional loan regulations by claiming they are not technically lending money; instead, they argue that they are buying the future accounts receivables from your small business at a steep discount and giving you a percentage of the present value in return. But that future accounts receivable amount is often inflated and is rarely "forgivable," especially in collection litigation. MCAs are very much loans that come with unreasonably high interest rates. They just do not look like normal ones.

And MCA companies are able to peddle their lines of credit at extortionate rates of interest in part because they extract security provisions that almost all other types of small business lenders would shy away from - usually a signed confession of judgment, which grants MCA companies the right to aggressively pursue legal claims against merchants.

How Much Did the MCA Company Cost Your Business?

To really appreciate how difficult it is for many companies to repay a merchant cash advance - even one with terms relatively close to those seen in a traditional loan - it helps to see just how high the repayments would have to be in a real-world situation.

Suppose a merchant cash advance gives a small business an upfront sum of $100,000 with a fixed interest rate of 20% for one year. That advance would cost the business $20,000 in interest for the year, and a total of $120,000 would have to be repaid. All this sounds relatively fine and within the norm for a normal loan.

However, MCAs are paid back through fixed withdrawals that happen on a daily basis, every weekday for a year. With 260 weekdays in a typical year, you would have to repay the advance company around $461.54 every day. That means your annual income from credit card sales and debit card transactions would have to be more than $600,000 (about $2,340 every weekday, on average) to cover the payments.

Why Are the Upfront Lump Sums So Low?

One of the reasons that merchant cash advance companies state that they are different from small business loan providers is that they are technically purchasing your small business' accounts receivables at a discount. They claim to not be providing you with a line of credit at all.

For example, suppose your business is set to make $10,000 every week for the next year from all the debit card and credit card purchases made by your customers. At 52 weeks in the year, this is an account receivable of $520,000. The merchant cash advance company claims to buy that receivable from your business at the discounted price of $300,000 and then take that future income stream as its own, giving you $300,000 now and in return taking the entire $10,000 per week, once your customers pay your business.

It makes a little bit of sense: That is a big enough discount on your receivables for the MCA company to make money, and $300,000 is a reasonable enough loan to keep your small business alive until it gets over its current cashflow problems.

What doesn't make sense, though, is that there is only a fixed and limited amount of profit in that arrangement - the MCA company would only make the difference between what it paid for your business' future accounts receivable and what they brought in, and only over the one year for which those receivables existed. To maintain profit and expand, most MCA companies resort to charging even higher amounts, or they make other MCAs that would also have to earn a profit to justify their making. It is a delicate balancing act, and it is the reason why MCA companies pay small amounts of money up front in exchange for steep withdrawals over a period of time.

The Business Interest Deduction Can Save You

MCAs claim to not be a loan, so they avoid the stringent regulations imposed on lenders. As a consequence, small business owners often neglect to deduct the amount paid in interest from their taxes as a "business interest deduction."

But just because MCA companies claim that their transaction with your company is not a loan does not mean that it is not treated like one by tax collectors. While loan payments are not deductible on your business' tax returns, interest payments are. In the example above, where the advance charges 20% interest and the daily payments totaled $461.54 per weekday for one year, you would have paid $120,000 over the course of the advance: $100,000 in repayments and $20,000 in interest. If the advance was truly a purchase of your company's future accounts receivables, all of the payments should be treated the same way for tax purposes. If the MCA is actually a loan, though, the $20,000 of interest you paid on the advance would be deductible and would offset your business' tax liabilities.

Many of the advance contracts written by merchant cash advance companies openly refer to the financial product as a loan and reference a predetermined maturity date, allowing you to claim the deduction in case a judge treats the advance as a loan - if you can find and interpret them correctly.

Repayment Terms Force Merchants to Accept More Advances

Nearly all merchant cash advances require daily payments to repay the advance company. As you would imagine, this quickly exhausts a business' assets, often necessitating a secondary advance.

This is not accidental. It is in the merchant cash advance company's best interest for you to take out more than one advance. Each time you get an advance from it, after all, it makes money from the line of credit that it gives you. So when its repayment schedule dries up your small business' assets with daily withdrawals that it knew you would have to make from the beginning, you will be forced to turn to the MCA company again.

These repeated lines of credit given to struggling merchants is called "stacking." It often escalates a business' precarious financial situation by introducing another draining payment to its account. At worst, stacking is just a stop-gap that prolongs a business' struggle before it is forced to shut down anyway. Meanwhile, the merchant cash advance company is still making money off of your repeated cash advances.

And renegotiating rarely helps. While they are quick to lend money at an unreasonably high rate of interest, merchant cash advance companies often tout their willingness to work with struggling borrowers. However, one of the provisions that they extract from businesses in desperate need of cash are contractual restrictions explicitly designed to prevent renegotiations. Those restrictions often take the form of early repayment penalties. If you have taken a merchant cash advance and have already made several payments but then want to work with the advance company to make the terms a little bit easier to satisfy, these penalties will demand that you pay all of the interest that you would have paid if the MCA were to run its full course. These restrictions often outweigh any benefit that you would get from renegotiating your contract.

You Might Be Getting a Personal Guarantee

Some merchant cash advance contracts contain provisions that stipulate that you and the other owners of your company are to be personally liable for making the advance repayments if your business fails to meet them.

What you probably don't know is that you may already be personally liable. If you opened a line of credit and personal loan while starting your business or when your business was too small to be a reasonable risk for banks to handle on their own, those companies may have required a personal guarantee to hold you and other members of your small business personally responsible for unpaid debts. Many of those personal guarantees come with dragnet clauses that extend the coverage to additional lines of credit or loans taken out in the future, even if you don't take one from the same lender - or take one from a merchant cash advance company. This means that, when a merchant cash advance company steps in to finance your company, there is a good chance that there is already a personal guarantee for that line of credit.

Bankruptcy does little to solve your small business' debt, either. A provision that many merchant cash advance companies have inserted in their contracts requires that, if you decide to file for bankruptcy to absolve your company from repaying the advance, the business will enter into a three-way escrow agreement.

Confessions of Judgment

In many states, merchant cash advance companies get business owners to sign what is known as a confession of judgment.

A confession of judgment is a legal document that is usually a part of a debt collection lawsuit. By signing it, you are confessing that your company owes the merchant cash advance company money and is currently in default of that debt, waiving your right to due process and to challenge the allegations in court. Many merchants are surprised to learn that they've been sued, a result of these automatic judgments favoring the lender.

Once you have signed a confession of judgment, the advance company only needs to go to court, show the confession to the judge, and obtain a judgment against your company for the outstanding debt. The judgment means that the advance company can start garnishing your company's assets without needing to go through a trial on the matter. In many instances, this step can happen just 24 hours after a default. The advance company could petition a court to file an automatic judgment against you without your business even knowing it until you get served with the court documents stating that your accounts are going to be levied.

Not All MCAs Are Legal

It would seem ironic that merchant cash advance companies would lie about this fact, but they often claim that MCAs are always legal. Nothing could be further from the truth, and one of the main reasons to hire a good defense attorney is to challenge an illegal contract.

Just like with many payday lenders, merchant cash advance companies are forced to provide funding at an unreasonably high rate of interest because they lend to high risk borrowers. Most high risk borrowers that default on the advance do so through a bankruptcy, which keeps advance companies from recovering anything. To offset that, MCA companies have crafted numerous creative provisions in their contracts. Many of these provisions have proven to be illegal or at least subject to numerous legal challenges, putting merchant cash advance companies in precarious situations if their borrowers turn on them or have a consumer protection lawyer challenge a provision that was supposed to secure their financial interest. While some provisions in MCA contracts, like an automatic default clause, can go either way in court, some - like confessions of judgment - are routinely and universally found to be illegal. And, while state licensing laws differ, many business entities providing loans under an existing credit agreement need a relevant state lending license.

The Agents Selling You the MCA Are Making Huge Profits

MCAs are pushed on small business owners in need of cash by very aggressive agents. There are two reasons for this.

The first is that MCA companies do not make the best loans in the financial world. The only reason they can sell a product at such high rates of interest is that their target customers - small business owners in financial trouble who have bad credit or whose companies are too small or too risky to obtain a traditional loan - do not have any other options. If those small businesses were to realize that they had more loan options with reasonable terms, no merchant cash advance company would stay in business for very long. Their agents have to put enormous pressure on companies in need of money to convince them to agree to such egregious terms.

The other reason is that MCA companies offer huge commission on the advances their agents sell. Each MCA is set to provide the advance company with huge profits through interest rates, fees, and deductions - the company can offer to pay its agents with the profits that it anticipates on each of those loans.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.