Business Cash Advance: How It Works and How to Read the Cost

What is a merchant cash advance?

The Federal Trade Commission describes merchant cash advances as a form of financing in which a company provides money to a small business up front in exchange for a larger amount repaid through daily automatic payments. That one sentence holds the two things every owner should focus on: you get less than you pay back, and the payments come out of your account automatically.

That is the FTC’s plain description, not a legal definition. Whether a specific contract is treated as a loan, a purchase of future receivables or something else is a legal question. If it matters to you, ask the provider how it classifies its product and have an attorney read the agreement.

How does a merchant cash advance work day to day?

The official sources describe daily automatic payments and, in Texas, a separate category of sales-based financing. Read your agreement to see which payment terms actually apply:

Before you sign either kind, ask the provider to answer in writing: What is the total I will repay? How is each payment collected? Can the payment change, and who decides when? What happens if I want to pay it off early?

State rules on cost disclosure and registration

Several large states now have rules aimed at commercial financing like this. Here is what the official sources say, in short. Coverage depends on the provider, the product and the deal, so ask the provider whether its offer to you is covered and request the disclosure if it is.

Texas is different from the other three: the OCCC source is about registering providers and brokers, so the practical step there is to look the company up in the OCCC licensee search. Our Texas guide walks through that, the Florida guide covers the Florida disclosure line by line, and the California guide explains how to read a DFPI disclosure.

One federal note, so it does not confuse you. On May 1, 2026 the CFPB published a final rule that extends the compliance date of its small business lending data rule (section 1071) to January 1, 2028, and the revised rule excludes merchant cash advances from its scope. That rule is about data that lenders collect and report. It is not a borrower protection, and it is separate from the state rules above.

How to read the cost: a worksheet

If a quote shows only a payment, or a multiple of the advance, turn it into dollars yourself. The figures below are illustrative only. They are made up for this guide and are not a quote from any provider.

What this illustration tells you:

• The real price is $13,000, not $12,000. The gap between the $52,000 repaid and the $40,000 headline is $12,000, but you only received $39,000, so measure cost against the cash you can spend.
• Divide to see the schedule. $52,000 at $400 per payment is 130 payments. Count whether those are business days or calendar days, then check the total against your slowest recent month.
• Ask for the rate view too. If you are in California, ask whether the offer comes with the DFPI disclosure, which includes an APR. Anywhere else, ask the provider to state the APR or explain why it will not.

This is worth the effort. In the Federal Reserve Banks’ 2025 Small Business Credit Survey, 60% of employer firms that borrowed from online lenders reported that actual borrowing costs were higher than expected.

Red flags, and what the Yellowstone case shows

In April 2021 the FTC announced that merchant cash advance provider Yellowstone Capital would pay more than $9.8 million to settle FTC charges that it took money from businesses’ bank accounts without permission and deceived them about the amount of financing they would receive. These were settled charges, not findings, and they say nothing about any other provider. They still point to two things worth checking on every offer:

1. The amount you will receive. Get the cash-to-your-account figure in writing, and compare it with what was said on the phone. If the numbers do not match, stop and ask why.
2. What you are authorizing. Ask exactly which account will be debited, how much, how often, and how you can ask questions about a debit you do not recognize.

Other warning signs worth pausing on:

• Pressure to sign before you have had time to read the full agreement.
• A quote that shows a payment but will not show the total you repay.
• No clear answer to who the actual provider is, as opposed to a broker or marketer.
• Terms you cannot explain back in your own words.

On that third point, the FTC wrote in 2020 that the FTC Act gives it broad authority to stop deceptive and unfair practices by companies involved in every step of small business financing, including lenders and finance providers, marketers, independent sales organizations (ISOs), brokers, lead generators, servicers and debt collectors. Knowing which role each company plays in your deal is a fair thing to ask.

Alternatives to compare against an advance

An advance is one option, not the only one. Before you pick, write down what the money is for and how long you need it, then look at other product types side by side on the same worksheet lines:

• A business line of credit, a product category listed by States Funding for comparison.
• A small business term loan, another listed product category to compare with the advance.
• Revenue-based financing, another listed product category. Read its written repayment terms with the same questions as above.
• Invoice financing, another listed product category to compare on the written terms.
• An SBA microloan, for a smaller need. The SBA says the program provides loans up to $50,000 through intermediary lenders. See our SBA microloan guide.

Where States Funding fits

States Funding is not a lender. It operates a platform that matches U.S. small and medium businesses with funding offers from independent third-party lenders, who originate and service the financing and decide approval, rates and terms. States Funding does not list merchant cash advances as one of its products. Offers through its lender network cover business lines of credit, small business term loans, revenue-based financing, invoice financing and non-dilutive capital.

If you want to see how those alternatives would look for your business, you can apply once and see any offers you qualify for side by side with full term details, total payback and effective APR. The typical floors to apply are about 6 months in business and $10K or more in monthly revenue. They are floors, not approval criteria, and States Funding does not guarantee that an application will result in an offer or that funding will close by any date. Offers are non-binding until you e-sign a funding agreement directly with the lender, and that agreement governs the fees and repayment. The actual lender written terms govern. To learn more first, read how States Funding works.

This guide is general information for U.S. business owners, not financial, legal or tax advice. States Funding is not a lender. Loans, advances and other financing products are originated and serviced by independent partner lenders, and States Funding does not guarantee that any application will result in an offer. Any examples are illustrative. The actual lender written terms govern any offer you receive.