we read a week's worth of small business funding threads — the loan subreddits, the entrepreneur subs, the tcpa complaint boards — and wrote down every question that came up more than twice. not the questions funders like to answer in their faq. the ones owners type out at 11pm after the daily debit clears and the payroll math stops working.
nine questions did most of the volume. here they are with straight answers.
1. is a merchant cash advance actually a loan?
on paper, no. an mca is structured as the purchase of a slice of your future receivables. that is not a technicality — it is the entire reason the product exists. calling it a purchase instead of a loan is what keeps most advances outside state usury caps and outside a lot of lending disclosure law.
in your bank account it behaves exactly like a very expensive short term loan. the legal wrapper protects the funder, not you. treat the economics as a loan and the paperwork as something stricter than a loan.
2. what does a factor rate really cost me?
a factor rate is a multiplier, not an interest rate, and that trips up almost everyone. 1.35 on $80,000 means you owe $108,000. that number does not shrink because you pay early, unless an early payoff discount is written into the contract in dollars.
the rough conversion most owners never run: divide the total cost by the amount advanced, divide that by the number of days in the term, then multiply by 365. an eight month advance at 1.35 lands somewhere north of 60% annualized. deals in the 1.40s on short terms routinely clear 100%.
there is a fair counterargument that annualizing a four month product overstates things. fine. then use the only number that matters instead: total dollars back, divided by the profit the money will generate. if the advance does not pay for itself inside the term, the rate debate is academic.
3. why does everyone warn about stacking?
stacking is taking a second advance while the first is still open. each position adds its own daily or weekly pull, and the pulls do not coordinate with each other or with your revenue. three positions can quietly claim a third of every dollar that lands in the account before you touch it.
the pattern owners describe again and again is the same: the second advance was sold as relief, it arrived without anyone clearly explaining that the first balance stayed intact, and the third one existed only to service the first two. that is the spiral. it starts with position two.
ask directly, in writing, whether the new funding pays off the existing balance or sits on top of it.
4. what is a reconciliation clause and why does it matter more than the rate?
reconciliation is the contract provision that lets your payment be adjusted down when your revenue drops. it is the single most underrated term in an mca agreement, and it matters more than a few points of factor rate.
a fixed daily ach does not care that january is slow, that a storm closed you for four days, or that your biggest customer paid late. a real reconciliation provision does. the catch is that many contracts include reconciliation as a courtesy the funder may grant rather than an obligation it must honor.
so ask three questions before signing. is reconciliation mandatory or discretionary. what documents do i submit to trigger it. how many days until the payment actually changes. a funder who answers all three cleanly is a different animal from one who says the policy exists.
5. what is a confession of judgment and should i be scared of it?
a confession of judgment is a clause where you agree in advance that if the funder says you defaulted, they can enter judgment against you without a hearing. no trial, no chance to argue. the first many owners hear of it is when the bank account is already frozen.
new york restricted their use against out of state businesses and some funders dropped them. plenty of contracts still carry equivalent teeth under different names — power of attorney provisions, personal guaranties, ucc filings on business assets, and default definitions broad enough that a single returned ach counts.
if you cannot find these clauses yourself, that is exactly the reason to pay an attorney a few hundred dollars to read the agreement before you sign it rather than after.
6. why did my phone explode the day after i applied?
because the application you filled out on a comparison site was not an application. it was a lead, and it was sold — often to dozens of shops at once, often more than once.
that is why the calls come from numbers that change daily, from companies whose names you have never heard, all somehow knowing your monthly deposits. the marketing side of this industry runs on purchased and resold data.
you do have leverage here. calls to a number on the national do not call registry, calls after you have said stop, prerecorded messages and autodialed texts to a cell all carry statutory damages per call under federal law. keep a log: date, time, number, company name, what was said. the log is the case.
7. am i talking to a real funder or a broker?
ask "are you the funder or an iso, and who actually issues the contract." almost everyone claims to be direct. the honest tell is whether they can name the funding entity on the agreement before you submit documents.
it matters because brokers are paid commission on funded deals only. that incentive structure is the source of most of the pressure, most of the stacking, and most of the promises that a longer term product will magically appear after you take this one. it usually does not.
brokers are not automatically bad. an unpaid one is impossible.
8. can i consolidate or restructure the positions i already have?
sometimes, and the market for it is full of people who will make things worse. the offer that shows up most often is a lower weekly payment stretched over a longer term, which frequently adds tens of thousands to what you owe in total. lower payment is not lower cost.
run every restructure offer through one calculation: total dollars you owe now versus total dollars you would owe after. if the second number is bigger, you bought time, not relief, and you should know the price of that time.
also worth knowing before you plan around it: sba programs have tightened sharply on refinancing advance debt, and existing positions are a red flag to conventional lenders. the window for cheaper money closes as positions accumulate, which is an argument for moving early rather than waiting for the crisis.
9. what happens the first day i miss a payment?
that depends entirely on the default section of your contract, and it is worth reading before you need it. in many agreements a single returned ach is technically an event of default, which can trigger the full remaining balance becoming due, ucc notices to your customers or processor, and collection calls to your personal contacts.
so ask the question before you sign, not after: what specifically triggers default, and what happens between a missed payment and legal action. a funder who says we call you and work out a plan is describing a different company from one who tells you to read the agreement carefully. that answer tells you more about who you are dealing with than any rate sheet.
the pattern under all nine
almost every question above is really the same question wearing a different hat: what did they not tell me, and where is it written down.
the cost of an advance is not only the factor rate. it is the rate, plus the reconciliation you cannot get, plus the default clause you did not read, plus the positions you added later to survive the first one. owners who came out fine almost always describe the same setup — one position, a short defined term, a specific purchase that returned more than it cost, and a payoff number they knew in dollars before they signed.
if a funder will not put the total payback in plain dollars in writing when you ask, you already have your answer. walk.