Capital repaid from a share of sales or card settlements: when it fits, what it costs and the red flags.
Revenue-based financing provides capital repaid from a share of future revenue, commonly through fixed daily or weekly debits or a percentage of card settlements. A merchant cash advance is a related product structured as a purchase of future receivables rather than a loan. Both underwrite deposits and sales history more than collateral or tax returns, which makes them fast and widely available, and expensive.
These products can be the right tool for a short, high-return need when nothing else is available in time. They become a problem when they are stacked, renewed before they are paid down, or used to cover a structural shortfall. These guides explain how the cost is calculated, how to read the contract, the red flags to catch before signing, and how businesses refinance into term debt once the numbers allow.
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Frequently asked questions
Is a merchant cash advance a loan?
Legally, many merchant cash advances are structured as a purchase of future receivables rather than a loan, which affects how they are regulated in many states. Practically, the business receives cash now and repays more through scheduled debits, so it should be evaluated on total cost and payment burden like any other financing.
How do I calculate the real cost of revenue-based financing?
Compare the total amount repaid with the amount received, then account for how quickly it is repaid: the same payback over a shorter period costs far more on an annual basis. Origination fees and any renewal terms belong in the comparison. Ask the provider for the total payback and the expected term in writing.
Can I refinance a merchant cash advance?
Often, yes. A business with steady revenue and improving credit can sometimes replace one or more advances with a term loan or an SBA loan that lowers the payment. Lenders review the advances' payoff amounts, the business's deposits and why the advances were taken, so a clean payment history helps.