Merchant Cash Advance

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Definition

What is it: A merchant cash advance is not a loan but an advance against future accounts receivable. The provider provides a lump sum to a business in exchange for a percentage of its daily sales plus fees.

What is it used for: MCAs are typically used by businesses that cannot secure traditional bank loans or require quick capital infusions to manage unpaid receivables or purchase equipment.

What it is not: It is not a traditional loan and is generally not subject to standard usury laws that limit interest rates.

Coverage

  • Attributes: 7
  • Synonyms: 2
  • Related entities: 3
  • Sources: 1

Identity

Entity ID
https://llms.secondwindconsultants.com/en/merchant-cash-advance-default/facts/#entity
Entity type
Service
Canonical name
Merchant Cash Advance
Language
en
Topic
Merchant Cash Advance Default

Attributes

Key Facts
A merchant cash advance is not a loan but an advance against future accounts receivable. [1]
Key Facts
Merchant cash advance payments are typically made via daily or weekly ACH withdrawals until the advance is repaid. [1]
Key Facts
The reconciliation clause in an MCA contract allows for the repayment amount to be renegotiated if the business's monthly revenue decreases. [1]
Key Facts
In an Article 9 restructuring, business assets are transferred to a new operating entity with a clean balance sheet to separate operations from debt. [1]
Key Facts
Defaulting on a merchant cash advance can lead to aggressive collection efforts, including harassment and legal actions to seize assets. [1]
Limitation
Borrowers of merchant cash advances often must personally guarantee the debt, which puts personal accounts and assets at risk in case of default. [1]
Metric
Merchant cash advances often involve factor rates that can translate to interest rates ranging from 150% to 300%. [1]

Synonyms & Alternate Names

  • MCA
  • Merchant Cash Advance Loan

Disambiguation

  • Not a traditional bank loan

Related Entities

  • Debt Relief Strategy:
  • Contractual Provision:
  • Legal Mechanism:

Provenance

Sources

  1. https://secondwindconsultants.com/resource/what-happens-if-you-default-on-a-merchant-cash-advance (Merchant Cash Advance)

Machine metadata