Merchant cash advance and revenue-based financing
The costliest structure of the 11, priced in dollars
The costliest structure here, priced in dollars and gated by state
Direct answer
A merchant cash advance buys a share of future receipts at a factor rate, repaid daily or weekly regardless of collections. It is the costliest structure of the 11 and the easiest to stack. Practition Finance explains the true cost in dollars, states where it is not offered, and treats it as a last resort.
As of October 2026
A merchant cash advance is not a loan. It is the purchase of a share of future receipts at a factor rate, repaid by daily or weekly remittance that continues whether collections that week were strong or not. It funds in days with minimal documentation, and that speed is the entire reason it exists.
Converted into dollars and into an annualized figure, the cost of this structure reads far above a term loan, daily remittance strips an operating account of its float, and cheaper structures belong in front of it. Practition Finance treats these structures as a last resort, states where they are not offered, and does not lead with them. It is an independent business financing referral service, and it explains this category rather than promoting it.
Whether this fits you, and when it does not
Commonly a fit
- An operator who has already ruled out every other structure and still faces an obligation with a date on it
- A business with an urgent, short, and specific need that a cheaper structure cannot reach in time
- An operator who has calculated the total dollar cost and the daily remittance against a realistic cash forecast
- A business with a defined plan to retire the advance rather than renew it
Commonly the wrong instrument
- An operator in a state where these structures are not offered, listed in the notice above and in the footer
- A business with receivables that could be factored or borrowed against instead
- A practice with an equipment need, which finances against the asset at a fraction of the cost
- An operator already carrying one or more advances, where another position compounds the problem
- A structural margin shortfall, where daily remittance accelerates the outcome rather than preventing it
How your money moves
- 01
Convert the factor rate into dollars
Amount advanced multiplied by the factor rate is the total repayment. The difference is the cost. A factor rate is not an interest rate and cannot be compared to one without conversion.
- 02
Annualize against the actual repayment period
Total cost divided by the amount advanced, scaled to the number of days it actually takes to repay. Short repayment periods produce very large annualized figures.
- 03
Model the daily remittance against real weeks
A fixed daily amount removed from the operating account is unaffected by a slow week, a holiday closure, or a payer delay. Test it against the slowest week of the last year, not the average.
- 04
Read the reconciliation clause
Some agreements allow the remittance to be adjusted when receipts fall. The clause, the notice requirement, and the documentation it demands are what decide whether that protection is real.
- 05
Rule out the cheaper structures explicitly
Working capital term loan, line of credit, receivables factoring, an AR line, and equipment paper each cost materially less. Each has its own page and each should be answered before this one.
- 06
Plan the exit before accepting the funds
Renewal before the balance is retired, sometimes called stacking when a second position is added, is how a single advance becomes a schedule that no longer has a solution.
Directional terms
Comparison figures for structures that should be answered before this category. Ranges, never quotes.
| What it measures | Market range | Confidence | How to read it |
|---|---|---|---|
| Factoring advance | 70% to 95% of net collectible value5 | VerifiedAugust 2026 | Where third-party receivables exist, factoring converts them at a per-invoice fee instead. |
| Factoring fee | 1% to 5% per invoice6 | VerifiedAugust 2026 | A per-invoice fee on a claim that pays in weeks is far below a factor rate on a daily remittance. |
| Pricing reference | 6.75%7 | VerifiedAugust 2026 | The reference every conventional structure prices against, for contrast. |
| Merchant discount reference | Cherry from 1.7% to 1.9%, Sunbit about 4.7%, CareCredit about 5% to 12%, PatientFi 8% to 15%8 | DirectionalAugust 2026 | Front-desk payment plans are a different category and are covered separately. |
These are ranges the market publishes, current as of the date beside each one. None of it is a quote, an offer, or an indication for your file.
What you will be asked for
The light document set is the product being sold. It is also why the pricing is what it is, and reading the full agreement before signing is the only diligence available in this category.
| Document | What it answers |
|---|---|
| Three to six months of business bank statements | Usually the whole file, which is why the category funds in days. |
| Processing statements where card volume is involved | Used to size receipts in card-heavy businesses. |
| A list of every existing advance or position | Undisclosed positions are a default event under most agreements. |
| The proposed agreement, read in full before signing | Reconciliation, default, and confession language are in the document rather than in the proposal. |
How long it takes you
Speed is the only dimension on which this category outperforms the alternatives above, and on most files a working capital term loan closes the gap in a comparable window at a fraction of the cost
| Stage | Market range | Note |
|---|---|---|
| Submission | hours | Bank statements are usually the entire submission. |
| Offer | hours to 1 day | Offers arrive quickly and expire quickly by design. |
| Funding | 1 to 5 days | The speed the category is sold on. |
| Remittance | daily or weekly until repaid | Continues regardless of the week's collections. |
The structure, drawn
The factor rate, annualized
A factor rate is a fixed multiplier, so the dollar cost never changes. Only the repayment window moves the annualized figure, and faster remittance pushes it up.
Source: Illustrative arithmetic from a 1.35 factor; state commercial financing disclosure acts require this annualized presentation · As of October 2026
Why the arithmetic surprises people
A factor rate is a multiplier on the amount advanced, not a rate over time. An advance repaid over four months and the same advance repaid over ten months cost the identical number of dollars, which means the faster the repayment, the higher the annualized cost. That is the reverse of how every other structure behaves, and it is the source of most of the surprise in this category.
Daily remittance is the second half of the problem. A fixed amount leaves the operating account every business day regardless of what came in. In a business with uneven collections, the remittance that was comfortable in a strong month becomes the reason payroll is short in a slow one. Modeling it against the slowest week of the last year rather than the average is the minimum honest test.
The third issue is what an advance does to the next twelve months of options. Positions filed against the business block the cheaper structures that come afterward, and most working capital lenders will not fund behind daily-remittance paper. A single advance taken for speed frequently removes the ability to refinance it, which is how a second position gets added and how the schedule becomes unmanageable.
Three ways this category compounds
Comparing a factor rate to an interest rate
They are different arithmetic. Convert the factor rate to total dollars, then annualize against the actual repayment period, and only then compare it to anything.
Renewing before the balance is retired
Renewal folds the unpaid balance into a new advance and charges the factor again on money already borrowed. The cost of the same dollars is paid twice.
Adding a second position
Two daily remittances against one deposit stream is the pattern that ends in a consolidation the business cannot obtain, because the cheaper structures will not fund behind them
Run your numbers
Model the factor rate
A factor rate is a fixed multiple, not an interest rate. The same dollar cost annualizes very differently depending on how fast it is repaid.
The cash that funds, before any origination fee is netted out
A multiple applied to the advance, not an annual rate
Total repaid
$135,000
$100,000 advanced at a 1.35 factor
Cost of the advance
$35,000
Fixed at signing. It does not fall if you repay early.
Remittance
$3,897 weekly, $16,875 monthly
Repaid across roughly 8 months at that pace
Annualized equivalent
86%
The same dollars expressed the way an interest rate is stated, so a note and an advance compare
Educational arithmetic on the numbers you entered. It is not a quote, a promise to lend, or an indication of offers to come, and no funder has priced this file. Program availability varies by state.
What owners ask about this program
01What does a factor rate actually cost?
Multiply the amount advanced by the factor rate to get total repayment, then subtract the advance to get the cost in dollars. That dollar figure is the only comparable number, because a factor rate is a multiplier rather than a rate over time. Annualizing it against the actual repayment period usually produces a figure far above every other structure described here.
02Is a merchant cash advance a loan?
The documents generally describe it as the purchase of future receipts rather than a loan, and that characterization has consequences for which regulations apply, what disclosures are required, and what remedies exist on default. Several states have enacted commercial financing disclosure laws addressing exactly this, and several restrict or prohibit these structures. Where a state does, Practition Finance does not offer them and says so on the page.
03Where are these structures not offered?
The state notice above and the disclosure block in the footer name the states where Practition Finance does not offer merchant cash advance or other revenue-based financing. The restriction is applied at the form as well as in the copy: the option is absent for visitors in those states and a request forced through by other means is rejected with the exclusion language rather than passed to anyone.
04What is stacking and why does it matter?
Stacking is taking a second advance while a first is outstanding, producing two daily remittances against one deposit stream. Most agreements treat an undisclosed second position as a default event. Beyond the contractual issue, the arithmetic is what ends businesses: the combined daily obligation is set against gross receipts rather than against margin, and it does not adjust when the week is slow.
05What should be ruled out before considering this?
A working capital term loan, a line of credit, receivables factoring or an AR line where third-party billings exist, and equipment paper where the need is an asset. Each has its own page with its own terms and timeline. On most files at least one of them funds inside a comparable window at a small fraction of the cost, which is why they are answered first rather than after.
06Does an advance block future financing?
Frequently, yes, at least until it is retired. Filings against the business limit what a new lender can secure, and most working capital lenders decline to fund behind daily-remittance paper because it consumes the same cash the new payment relies on. Many will fund specifically to retire it, which is why disclosing every position at the beginning of a conversation is more useful than protecting it.
Sources
- 1Federal Trade Commission, small business financing guidance
- 2Responsible Business Lending Coalition, disclosure standards
- 3Federal Reserve Small Business Credit Survey
- 4Wall Street Journal prime rate
- 5Clarify Capital, Crestmont, Factor Finders
- 6MonitorDaily, Crestmont, FactoringExpress
- 7Lendio, sbaloanindex.com
- 8withcherry.com, axiantpartners.com, practicesignal.com
Take the checklist with you
Practices
Practice Financing Readiness Kit
What a lender reads before it reads your numbers
PDF · 9 pages · v1.0
- The practice document checklist, in the order a lender asks for it
- The valuation ladder: percent of collections, SDE multiple, and EBITDA multiple
- The acquisition capital stack, drawn
- The de novo cash curve to break-even
- The lease versus loan after-tax comparison worksheet
- The 12 questions to ask before signing a letter of intent
Our team reviews the request and looks for a funding partner that fits. Cheaper structures belong in front of this one, and the partner states its dollar cost in writing.