A merchant cash advance is not a loan: it is a purchase of a business's future sales receipts, collected as a share of sales or through scheduled debits until the purchased amount is remitted. Marbleharbor Advances, a small-business funding broker in Franklin, Tennessee, explains advances to Williamson County owners and compares them with loan options; funders make decisions and set terms.
| What it is | A purchase of future sales receipts; not a loan |
|---|---|
| Price expressed as | A factor: the purchased amount divided by the advance |
| Collected through | A holdback share of card sales, or fixed ACH debits with reconciliation |
| Ends when | The full purchased amount has been remitted |
| Compare it by | Total remitted, in dollars, against total payments on a loan |
| Who sets terms | The funder, not Marbleharbor Advances |
Is a merchant cash advance a loan?
No. A merchant cash advance is not a loan. The funder buys a fixed amount of your future receivables at a discount: you receive the advance now, and the funder collects the purchased amount as your sales come in. Because it is structured as a purchase rather than a loan, the pricing, the collection method and what happens when sales fall all work differently from a loan.
How the holdback and remittance work
Most agreements use one of two collection methods. With a split or holdback, the card processor sends a set share of each day's card sales to the funder, so the amount collected rises and falls with sales. With fixed ACH debits, the funder takes the same amount from the bank account each business day or week, based on an estimate of sales. Fixed-debit agreements normally include a reconciliation clause that lets you ask for the debit to be adjusted if actual sales are lower than estimated. Ask how to request it, how often, and what records the funder wants.
Reading the price: the factor
Advances are usually priced with a factor, a multiplier applied to the advance. The purchased amount equals the advance times the factor, and the cost is the purchased amount minus the advance, plus any fees deducted up front. A factor is not an interest rate and cannot be compared with an APR directly, because it does not change with time: the cost is the same whether the purchased amount is collected in four months or eight.
The useful comparison is in dollars. Write down the amount you will actually receive after fees, the total that will be collected, and the expected collection period from your own sales. Then put those numbers beside the total payments on a working capital loan for the same need.
Do merchant cash advances report to credit?
Many funders do not report regular remittances to the business credit bureaus, which means an advance collected as agreed may do little to build the business's credit file. Funders commonly check the owner's credit when reviewing an application, and a default can lead to collection activity that does show up. Ask each funder directly what it reports and to whom.
What is loan stacking?
Stacking means taking a second advance or loan while an earlier one is still being collected, so that two or more funders draw from the same sales or bank account. Each additional position adds daily or weekly withdrawals and leaves less cash for operations. Many advance agreements prohibit stacking and treat it as a breach. If a business needs a second advance to keep up with the first, that is a strong sign the structure no longer fits.
What happens if you default on a merchant cash advance?
Because the funder bought future receivables, an advance generally assumes that collection slows if sales slow; a business that closes in good faith is treated differently in many agreements from one that diverts sales or blocks the debits. The events of default section of the contract defines what counts as a breach and what the funder may then do, which can include demanding the remaining balance and enforcing a personal guarantee. Read it before signing.
When an advance is weighed
Advances are generally considered by businesses with steady card sales that need cash for a short, specific purpose and have looked at loan options first. Restaurants and shops fit that description most often. We would rather compare an advance with a line of credit or a working capital loan before you sign than after. The sector pages and the Franklin, TN page describe the local businesses where card sales dominate, and how a request moves explains our role.
By Marbleharbor Advances · Updated