To read an MCA offer, find six things: the funded amount, the purchased amount (the total you'll deliver), the factor rate that links them, the payment and how often it's collected, the estimated term, and any fees deducted from the funded amount. The difference between the money you actually receive and the purchased amount is your true cost. Then check the disclosure and the agreement's reconciliation and early payoff terms.
The key numbers in a merchant cash advance offer
| Term | What it means | What to check |
|---|---|---|
| Funded amount | The amount of the advance | Is it what you need, not more? |
| Purchased amount | The total of future receivables you're selling | Is it stated clearly, as a dollar figure? |
| Factor rate | Purchased amount ÷ funded amount | Does the math match? |
| Specified percentage | The agreed share of your sales | How it relates to the payment |
| Payment and frequency | The fixed daily or weekly debit | Can your account carry it on a slow week? |
| Estimated term | Purchased amount ÷ payment | Is it an estimate, with no fixed due date? |
| Fees and net funding | Anything deducted before money is sent | What actually reaches your account? |
Funded amount
The headline figure: the amount of the advance. A bigger number isn't automatically better. Every extra dollar funded adds to the purchased amount and the payment, so ask for what your plan needs.
Purchased amount, your hard stop number
The total amount of future receivables you're selling, and so the total your business will deliver. At InstaFunders we call it your hard stop number: it's fixed before you sign and never grows, even if sales slow and payments take longer. If an offer doesn't state this figure plainly, ask for it in writing.
Factor rate
The multiplier between the funded amount and the purchased amount. Check the arithmetic yourself; it takes ten seconds. Our factor rate guide explains why it isn't the same as an interest rate.
Payment, frequency and specified percentage
The fixed daily or weekly debit, and the agreed share of your sales it's based on. Daily payments run on business days; weekly payments run once a week. See how MCA payments work.
Estimated term
How long it should take to deliver the purchased amount at the stated payment. It's an estimate, because a merchant cash advance has no fixed repayment date. InstaFunders' maximum term is 10 months.
Hypothetical offer. Funded amount $80,000. Factor rate 1.35. Purchased amount $108,000. Payment $900 each business day. Estimated term: $108,000 ÷ $900 = 120 business days, a little under six months. If a hypothetical $2,000 were deducted in fees, $78,000 would reach your account while you'd still deliver $108,000, so the true cost would be $30,000, not $28,000. Illustrative numbers, not an offer.
Fees and net funding: what actually reaches your account?
The funded amount and the money that lands in your bank account aren't always the same. Ask whether any fees are deducted from the funded amount, what each one is for, and what the net amount will be. Then calculate your cost from that net figure. It's the only way to compare two offers fairly, because a lower factor rate with larger deductions can cost more than a higher one without them.
If an existing advance is being paid off from the new funding, as in a renewal, the net amount will be lower again. Make sure the offer shows that payoff separately.
What a disclosure adds
Several states require funders to give a standardized commercial financing disclosure with an offer. It typically restates the total amount provided, the total cost, an estimated APR or estimated term, payment details and what happens if you pay early. InstaFunders provides the disclosures a merchant's state requires. Read it alongside the offer; the numbers should match. More in our guide to state disclosures.
Contract terms worth reading closely
- Reconciliation. How to request an adjustment if your sales drop. See MCA reconciliation.
- Early payoff. Whether a discount is available and how it's calculated. At InstaFunders, early payoff discounts are available case by case; see paying off an MCA early.
- Returned payments. Any fee for a debit that's returned, and how missed payments are handled.
- Events of default. What the agreement treats as a breach, such as blocking debits or moving deposits to an undisclosed account.
- Additional financing. Whether you need consent before taking another advance.
- Guaranty. Many MCA agreements include an owner's guaranty of the business's performance under the agreement. Understand what yours covers.
- UCC filing. Funders commonly file a UCC-1 financing statement. See UCC filings.
If any clause isn't clear, ask the funder to explain it, and consider having an attorney review the agreement before you sign.
MCA offer checklist
- The funded amount, purchased amount and factor rate are all stated, and the math works.
- You know the net amount that will reach your account after any fees.
- The payment, frequency and debit account are clear.
- The payment works in your slowest recent month, alongside any existing advances.
- You understand the estimated term and that it isn't a fixed due date.
- You know how reconciliation and early payoff work.
- The disclosure, if your state requires one, matches the offer.
- Every number is in writing.
Red flags in a merchant cash advance offer
- A fee requested before funding to "secure" an approval
- Promises of guaranteed approval
- No clear purchased amount, or numbers given only verbally
- Fees that appear in the contract but weren't in the offer
- Pressure to sign before you've had time to read
- Blank fields in the agreement
- Suggestions to leave accounts or existing advances off your application
- A payment that only works if your best month repeats every month
How to compare two MCA offers side by side
Put both offers into dollars: net amount received, purchased amount, cost (purchased minus net), payment per week, and estimated term. The cheaper offer is the one with the lower cost for the money you actually receive, provided its payment still fits your cash flow. The merchant cash advance calculator makes this quick. Ready to see a real offer? Check the requirements, then apply.
Frequently asked questions
What is the difference between the funded amount and the purchased amount?
The funded amount is the amount of the advance. The purchased amount is the total of future receivables you're selling, which is what your business delivers in total. The purchased amount equals the funded amount multiplied by the factor rate.
How do I calculate the real cost of an MCA offer?
Subtract any fees deducted from the funded amount to find the money you'll actually receive, then subtract that figure from the purchased amount. The result is your true dollar cost. Compare offers on that number and on whether the payment fits your cash flow.
What fees should I ask about on a merchant cash advance?
Ask whether any fees are deducted from the funded amount, what each one is for, and what net amount will reach your account. Also ask about fees for returned payments and whether paying off early carries any charge or discount.
Is the estimated term on an MCA offer a deadline?
No. A merchant cash advance has no fixed repayment date. The estimated term is the purchased amount divided by the payment, so it shows how long delivery should take at that payment. Reconciliation or early payoff can change it.
What are the biggest red flags in an MCA offer?
Fees requested before funding, guaranteed approval, a purchased amount that isn't stated in writing, fees that appear only in the contract, pressure to sign immediately, and advice to hide accounts or existing advances.