Is a merchant cash advance a loan, or something else?

A merchant cash advance is not written as a loan. It is a purchase: the provider pays you a lump sum now in exchange for a larger share of your future sales, collected as a percentage of takings or a set daily amount. Whether it is treated as a loan in practice depends on how the contract actually works, and regulators have pulled several "advances" back into loan territory.

What the structure means for you

Because the provider is buying receivables rather than lending, the price is a fixed factor (say 1.35) rather than interest. That matters in three ways.

• Usury caps. State limits on interest apply to loans. A genuine purchase of future sales generally falls outside them, so the yearly cost can run well past anything a bank could charge.
• Repayment that moves with sales. In a true advance, if your sales drop, the provider collects less. New York's disclosure rules describe this as a split rate, with the example: "Each business day, your credit card processor will remit 15% of your gross receipts to us."
• Reconciliation. Where the provider takes a fixed daily amount as an estimate, a true-up mechanism lets you ask for the payment to be adjusted so the total "more closely reflects a split rate listed in the contract".

That flexibility is the trade. You pay more than a loan, and in return the payments are supposed to bend when trade is slow.

When an advance is treated as a loan

Labels don't decide it. In February 2024, the New York Attorney General announced a judgment of more than $77 million against three companies the court found had disguised illegal loans as merchant cash advances; one example was a $10,000 advance repaid as $19,900 over 10 days. In January 2025 the Attorney General announced a $1.065 billion settlement with Yellowstone Capital, describing contracts written as revenue purchases while the company collected fixed daily amounts, and erasing more than $534 million in outstanding debts.

The pattern in both: fixed payments, no real link to sales, and a reconciliation right that didn't work in practice.

Sterling's take: if the payment never changes no matter what you sell, read the contract as if it were a loan, because that is how it will feel.

Questions to ask before you sign

1. Is the payment a percentage of sales, or a fixed daily or weekly amount?
2. If fixed, is there a reconciliation clause, how do I trigger it, and how quickly is it applied?
3. Is there a fixed term, or does the deal end only when the purchased amount is collected?
4. What happens if the business closes through no fault of mine?
5. Is there a personal guarantee or a confession of judgment?

What to do next

Convert the offer to an APR with the MCA APR calculator so you can compare it with a loan on equal terms. If a term loan or line of credit is available to you at a lower yearly cost, the flexibility of an advance has to be worth the difference.