MCA Lenders: How to Vet Offer Terms

What are MCA lenders?

MCA lenders are companies that advance cash to a business in exchange for a share of its future sales, repaid through daily or weekly debits. Before you sign with one, check two things: the provider itself and its written offer.

The state laws cited here do not say "lender." New York calls the company a provider and the product sales-based financing, per NY Financial Services Law §801(h) and (j). For the product mechanics, start with our guide to the merchant cash advance.

Three kinds of companies sit in this market:

• Direct funder: The provider that signs the contract, sends the money and collects the debits.
• Broker or ISO: An intermediary that shops your file to several providers.
• Directory or marketplace: A site that lists providers or passes your details on to them.

Federal Truth in Lending rules exempt credit extended primarily for a business purpose, per 12 CFR 1026.3(a)(1). So the disclosure rules you can lean on come from state laws.

Commera is a broker, not a lender. We compare offers from our lender partners.

How do you check that a merchant cash advance company is legitimate?

A legitimate merchant cash advance company shows up in the state records where registration is required. It also puts its terms in writing before it asks for money. Start with registration, then test the offer against known warning signs.

Virginia: Sales-based financing providers and brokers had to register with the State Corporation Commission by November 1, 2022, under Va. Code §6.2-2230. You can look a company up in the SCC Company Search, which lists sales-based financing providers.

Texas: Commercial sales-based financing providers and brokers register under Chapter 398 of the Texas Finance Code. Per the Texas OCCC, new applications go through NMLS beginning September 1, 2026. The same OCCC page links to its Licensee Search.

Other states run their own rules. Ask the provider which registrations it holds, then check them yourself.

The warning signs come from a real federal case. Per the FTC, RAM Capital Funding and its owner were banned from the merchant cash advance business and ordered to pay $675,000 in 2022. The FTC alleged that the defendants:

• demanded upfront fees and personal liability pledges after saying they would not
• provided less funding than promised
• debited more than they said they would, and made unauthorized withdrawals
• used confessions of judgment to pursue owners' personal assets in court.

The case against the co-defendants, including RCG Advances, was still ongoing when the FTC announced that order.

Existing liens matter too. Before you sign, check UCC filings against your business, so you know what a new provider may find.

Example: provider check before you share bank statements

1. Registration in your state: Search the state register yourself, using the provider's exact legal name, not its brand.
2. Written offer first: Ask for the full disclosure and the contract in writing before any statements leave your hands.
3. No upfront fee: Treat any request for money before funding as a stop sign, whoever asks for it.
4. Who actually funds: Get the legal name of the company that signs the contract and will debit your account.
5. Existing liens: Pull your own UCC filings so you know what a new provider will find and ask about.

What should a written MCA offer disclose?

A written MCA offer should show what you receive, what you pay back, how you pay and what it costs in total. New York, Virginia and Florida spell out the items. The table works as a checklist in any state.

Sources: NY FSL §803, Va. Code §6.2-2231 and Fla. Stat. §559.9613. "No" means the law does not require the item.

Each law has exemptions. Florida's disclosure rules cover transactions consummated on or after January 1, 2024, according to Fla. Stat. §559.9612.

New York is the only one of the three that asks for an estimated APR. It must follow Regulation Z §1026.22, per NY FSL §803. Where no law requires a line, ask for it in writing anyway.

A factor rate alone tells you little. Our guide to factor rate vs. APR explains why the two numbers differ.

Worked example: two $50,000 offers from MCA lenders

Two offers of the same size can cost differently in dollars, in APR and in monthly load. In the Commera illustrative calculation below, the offer that costs less in dollars has the higher APR and the heavier payment.

Methodology: Commera illustrative calculation, not an offer and not a real deal. Assumed revenue is $100,000 a month. The year has 260 business days, or 21.67 a month, and payments are fixed, with no missed debits. Estimated APR is the IRR of the payments against the amount received, annualized by 260 for daily and 52 for weekly payments.

Factor rates do not represent APR.

Offer A costs $3,500 less in total, per this Commera illustrative calculation. Yet its estimated APR is about 1.7 times as high, and its monthly load is almost double.

The fee explains part of the gap. Without the withheld fee, the same Commera illustrative calculation puts Offer A at about 133%. The short daily schedule explains the rest.

Neither offer wins on every line. A business that can carry the daily debit may prefer the lower dollar cost. A business with thin margins may need the lighter payment. To test your own figures, run the numbers on an advance.

Which contract terms matter most?

The terms that matter most decide what happens when sales change, when you want out and when something goes wrong. Read these clauses before you compare price.

Reconciliation: New York treats a fixed payment with a reconciliation process as sales-based financing, per NY FSL §801(j). Reconciliation adjusts the fixed payment to a percentage of actual sales. Find out how you request it and how often.

Fixed ACH or a share of sales: These are not the same deal. Per Commera's revenue-based financing options page, many agreements use fixed daily or weekly ACH payments that do not automatically fall when sales slow.

Confession of judgment: Virginia makes any confession of judgment provision in a sales-based financing contract unenforceable, per Va. Code §6.2-2234(C). Ask whether your contract contains one.

Where disputes go: In Virginia, a claim under such a contract must be brought in a Virginia court, per Va. Code §6.2-2234(A).

Early payoff: New York requires the provider to disclose whether you would owe unpaid finance charges if you pay off early, per NY FSL §803(h). Virginia requires the prepayment policy and any discount, per §6.2-2231(7).

Collateral: New York requires a description of collateral or security interests, per NY FSL §803(i). Read what the provider can file against.

Stacking and default triggers: Check whether a second advance breaks the contract. List every event that counts as default.

Worked example: what reconciliation changes when sales drop

Reconciliation changes the size of each payment, not the total you owe. In this Commera illustrative calculation, Offer A runs into a sales drop. The fixed debit then takes a much larger share of revenue.

Methodology: Commera illustrative calculation based on Offer A from the first example: $48,500 received after the fee, a factor rate of 1.28, the same total repayment and $640 per business day. It is not an offer. Sales fall to $70,000 a month from the third month, and the specified percentage is an assumed 14%. The reconciled payment is spread evenly over business days, and other assumptions, including the APR method, match the first example.

After two months of fixed debits, $36,267 is still owed, per this Commera illustrative calculation.

Factor rates do not represent APR.

In this Commera illustrative calculation, the total repayment stays at $64,000 in both rows. Reconciliation stretches the time and lightens each month.

The fixed debit ends sooner but takes nearly a fifth of sales. How you request reconciliation, and how often, depends on the contract.

How do brokers fit in, and how are they paid?

Brokers sit between you and the provider, and a provider may pay them on your deal. Virginia requires the provider to state whether it pays a broker on the specific offer and how much, per Va. Code §6.2-2231(9).

Florida bars a broker from charging a business an advance fee, per Fla. Stat. §559.9614. An advance fee is money collected before the deal closes.

Here is how Commera is paid, quoted from our site footer: "Commera charges no fees to merchant applicants; we are compensated by funding partners on a completed transaction. Funder origination, underwriting, or closing fees may apply and are disclosed in your written offer before you sign."

For what a broker does and how to vet one, read our guide to the business loan broker.

Broker disclosure: Commera Finance is a broker, not a direct lender. Financing providers make their own eligibility, underwriting, approval, pricing, and term decisions.