Is a merchant cash advance a loan?

The funder buys a defined amount of your future revenue for a discounted sum today. You are not borrowing $50,000 and repaying $65,000 with interest; you are selling $65,000 of future receipts for $50,000 now.

Because it is a purchase rather than a loan, there is no interest rate, no APR in the contractual sense, and no repayment schedule in the ordinary meaning — which is why the price is quoted as a factor rate.

This also means usury caps, which limit interest rates on loans in most states, generally do not reach it. That is not a loophole somebody found; it is the reason the product exists in this form.

The distinction holds only if the funder genuinely takes on risk. Courts examining these agreements have focused on whether repayment is truly contingent on revenue — which is what reconciliation clauses are for.

An agreement with a fixed term, a fixed payment and no meaningful adjustment for a revenue decline starts to look like a loan with the labels changed, and has been treated that way in litigation.

This is the practical reason to read the reconciliation clause carefully. It is both the protection you will actually use and the thing that makes the structure what it claims to be.

Compare in dollars, not percentages. The total you repay and the time over which you repay it are the only two numbers that transfer cleanly between an advance and a loan.

Do not assume disclosure rules that apply to consumer credit apply here. Several states now require commercial financing disclosures, but small-business borrowing is far less protected than consumer borrowing generally.

The absence of a rate cap is exactly why it is worth getting more than one offer.