A plain-English explanation of what it is, how the math works, what it costs, and when it makes sense. We skip the jargon. We're honest about the tradeoffs.
If you've spent any time looking into working capital options for a small business, you've probably run into the term merchant cash advance, sometimes shortened to MCA. More recently the industry has started using a more accurate name: revenue-based financing.
A revenue-based advance is not a loan. There's no interest rate, no monthly payment, no maturity date. Instead, a lender advances a sum of capital to a business in exchange for a fixed percentage of the business's future revenue.
Two numbers are agreed at the start:
Repayment happens through automated daily or weekly debits from the business's operating account. Each debit is a fixed dollar amount, sized so that on a typical revenue day, the debit covers what's owed without choking the business.
When the business has a strong week, payback happens faster. When it has a slow week, payback takes longer. The total dollars owed don't change. Only the time changes.
The cost of an advance is expressed as a factor rate, not an APR. The factor is a multiplier.
Picture a $100,000 advance with a factor rate of 1.32. Multiply: $100,000 × 1.32 = $132,000 total payback. The cost of capital is $32,000.
If the lender estimates the business can comfortably remit about $2,538/week, the advance pays back in roughly 12 months ($132,000 ÷ $2,538 ≈ 52 weeks).
The factor doesn't change. The weekly debit doesn't change. Only the time fluctuates with revenue.
Comparing factor rate to APR isn't apples to apples. The structure is different in three ways that matter:
Speed. Revenue-based advances close in days. A bank loan can take weeks or months.
Access. Revenue-based financing weights revenue over credit and collateral. A business with a strong revenue pattern but a thin credit profile can qualify when banks pass.
Flexibility. Daily/weekly remittance scales with the business's actual revenue rhythm. There's no balloon payment, no rate reset, no escrow.
These features have a cost. A revenue-based advance is almost always more expensive than a bank loan if both are available. The point is that they often aren't both available, or the timeline is mismatched.
Use revenue-based financing when the use of funds has a clear, short-term path to revenue that exceeds the cost of capital. Some clean fits:
1. What's the total payback, and what's the daily/weekly debit? You need both numbers in dollars.
2. What happens if I have a slow week? A reasonable lender has a process for short-term modifications when communication is early.
3. Is there a prepayment savings? On a well-structured agreement, prepayment shortens the time but doesn't change the total. Some agreements have prepayment incentives. Read the term sheet.
The terms we quote are the terms we hold. We deploy our own capital, and every credit decision is made at our desk.
LendPoint is a direct revenue-based financing lender. We deploy our own capital and service every deal in-house. The terms we quote are the terms we hold. We say no to most of what hits our desk. When something needs to be modified mid-deal, the conversation happens with the team that wrote it.
If you're considering an advance for your business, the most useful thing you can do is talk to a few different funders. Compare term sheets. Ask about restructure policy. Look at how they answer hard questions.
We'd be glad to be one of those conversations. Apply for funding or get in touch if you want to talk it through first.
