Revenue-based financing (RBF) and merchant cash advances (MCAs) both give you cash now in exchange for a share of future revenue, and both quote a fixed payback amount instead of an interest rate. The difference is in how you repay: an MCA usually takes a fixed daily or weekly debit, while true RBF takes a percentage of monthly revenue that rises and falls with sales. Both are expensive. Convert the offer to an effective APR before you sign.
Key takeaways
- MCAs are typically priced with factor rates around 1.1 to 1.5 and repaid daily or weekly over 3 to 12 months.
- A $100,000 advance at a 1.35 factor repaid over about 6 months works out to an effective APR above 100%.
- RBF ties payments to a percentage of monthly revenue, usually over a longer period, so its effective cost is often lower.
- If you already have stacked MCAs, a longer-term loan to consolidate them can cut payments sharply.
How a Merchant Cash Advance Works
An MCA provider buys a portion of your future receivables at a discount. You receive the advance and agree to remit a fixed total, the advance times a factor rate, through automatic debits from your bank account. Because MCAs are structured as purchases of receivables rather than loans, they have historically fallen outside many lending rules, although several states now require cost disclosures for commercial financing.
How Revenue-Based Financing Works
With RBF, you repay a fixed percentage of monthly revenue, often 2% to 10%, until you reach a payback cap, commonly 1.2 to 2.0 times the amount funded. Slow months mean smaller payments; strong months pay it off faster. RBF is popular with SaaS, e-commerce and subscription businesses with recurring revenue and good margins.
Side-by-Side Comparison
| Merchant cash advance | Revenue-based financing | |
|---|---|---|
| Pricing | Factor rate, about 1.1 to 1.5 | Payback cap, about 1.2 to 2.0x |
| Payments | Fixed daily or weekly ACH (or a split of card sales) | Percentage of monthly revenue |
| Typical term | 3 to 12 months | 12 to 36 months |
| Flexes with sales | Rarely in practice | Yes |
| Speed | 24 to 72 hours | Days to a few weeks |
| Early payoff discount | Usually none | Sometimes |
Converting Factor Rates to APR
MCA example: $100,000 advance at a 1.35 factor = $135,000 payback, collected over about 126 business days (roughly 6 months) at about $1,071 per day. Because you repay quickly, the effective annual rate is about 126%.
RBF example: $100,000 with a 1.4x cap, repaid at 8% of $120,000 monthly revenue ($9,600 per month). It pays off in about 15 months for an effective annual rate of roughly 56%. Still expensive, but less than half the MCA cost, with payments that drop if revenue drops.
The shorter the repayment period, the higher the effective APR on the same factor rate. Always ask: how much do I pay back in total, and over how long?
When Either One Can Make Sense
- A short opportunity with a clear, high return, such as a bulk inventory discount.
- Bridging to a cheaper loan that is already approved.
- Businesses that can’t yet qualify for a term loan, line of credit or equipment financing.
Red Flags
- Taking a second advance to make payments on the first (stacking).
- Daily debits above 10% to 15% of daily deposits.
- Confessions of judgment or personal guarantees you don’t understand.
- Brokers who won’t show the total payback and term in writing.
Cheaper Alternatives
- A business line of credit or term loan
- Equipment financing for asset purchases
- SBA 7(a) loans for long-term needs
- Invoice financing for slow-paying B2B customers
Already carrying MCA payments? Read how to escape MCA payments with a term loan.
Frequently Asked Questions
Is a merchant cash advance a loan?
Legally, an MCA is usually structured as a purchase of future receivables, not a loan. In practice it works like very expensive short-term financing, and some states now require cost disclosures.
What is a typical MCA factor rate?
Most fall between about 1.1 and 1.5. On a 6-month payback, a 1.35 factor works out to an effective annual rate above 100%.
Is revenue-based financing cheaper than an MCA?
Usually. RBF tends to run longer and flexes with revenue, so its effective annual cost is typically lower than a short MCA with fixed daily debits.
How do I get out of multiple merchant cash advances?
A consolidation term loan with a longer repayment period can pay off the advances and replace daily debits with a lower monthly payment, if your revenue supports it.
Have a deal in mind? Comparing an advance offer, or stuck in daily payments? Tell us about the deal and we will match it with the lenders that fit.