A merchant cash advance agreement is short, but a few terms decide what it actually costs and how it is repaid. Reading them before you sign — rather than after — is the single best way to avoid surprises. This guide walks through the terms that matter most, in plain English.
Purchase amount and purchased amount
An MCA is the purchase of future receivables, not a loan. The contract states the funded amount (what you receive) and the purchased amount (the total you remit). The difference between them is your cost, set by the factor rate — not an interest rate or APR.
Factor rate and total cost
The factor rate (for example 1.25) multiplied by the funded amount gives the purchased amount. A $50,000 advance at 1.25 means $62,500 remitted. Because it is fixed, the cost does not change with time — so paying it off early does not reduce the dollar cost the way prepaying a loan would. Always confirm the factor rate and the resulting total in writing.
Remittance and holdback
Remittance is how you pay it back — usually a fixed daily or weekly amount, or a percentage of daily card sales (the holdback). Check the amount, the frequency, and whether it adjusts if revenue dips. A true revenue-share remittance flexes with your sales; a fixed debit does not.
Clauses to read closely
Look for any personal guaranty, a UCC filing, reconciliation rights (your ability to adjust remittance if sales fall), and renewal terms. Reputable funders explain all of these up front. If a term is unclear, ask for it in writing before signing.
The bottom line: know your factor rate, total remittance, and remittance schedule before you sign. Y Millennial Funding is a direct funder of revenue-based funding for businesses doing $25,000 or more in monthly revenue, and explains every term up front — a small business loan alternative, not a loan. Not all applicants qualify.