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Business financing and MCA risk

Merchant Cash Advances for Contractors: Cost, Risks, Red Flags, and Safer Alternatives

A merchant cash advance can put money in your account in a day or two. What it does to a contracting business is different from what it does to a restaurant or a retail shop, because you pay for materials and payroll long before your customers pay you. This page explains how the product is built, what it actually costs, which contract terms decide how bad a slow month gets, and what else exists. Every legal statement below is tied to a primary source with a quote and a link.

Last reviewed against the primary sources cited on this page: 6 August 2026. Enforcement actions, statutes and regulations in this area change quickly. Re-check every source before you rely on it.

Why contractors are unusually exposed
What a merchant cash advance actually is
Why you receive less than the number on the contract
A factor rate is not an interest rate
Why the annualised cost gets so large
The reconciliation clause is the whole ballgame
Renewals and stacking
The contract terms that decide what happens when it goes wrong
The label on the agreement does not settle its legal treatment
What regulators have actually alleged
Some states now require commercial financing disclosures
What to do before you sign
Sources

Why contractors are unusually exposed

Most explanations of merchant cash advances are written for businesses that collect at the point of sale. A coffee shop takes money the moment it hands over a cup. You do not. Your cash cycle is built the other way round, and that is the whole problem.

You pay first. Materials get bought and payroll gets run before the invoice goes out, let alone gets paid. On a job of any size you are financing the customer for weeks.
Progress payments lag. A draw approved on the fifteenth is not money in the bank on the fifteenth. Somebody has to inspect, approve, cut the cheque and mail it.
Retainage is revenue you have earned and cannot spend. A percentage of every draw is held back until the job closes out, sometimes long after your last day on site.
Change orders sit disputed. Work you already performed and already paid for turns into an argument, and the argument is unpaid.
Demand is seasonal. Weather, permitting cycles and the holidays move your collections around by tens of thousands of dollars a month, and not gradually.
One bad event moves a month. A callback, a failed inspection, a two-week weather delay, a chargeback on a card-funded deposit — any one of them can push a projected month of collections into the next month.

The daily withdrawal does not know any of that happened

If the agreement takes a fixed dollar amount every business day by ACH, then the callback, the failed inspection, the weather delay, the disputed change order and the retainage hold all land on you and none of them land on the withdrawal. Your revenue is variable. The outflow is not. That mismatch is the specific way this product hurts contractors, and it is why the reconciliation clause discussed below matters more than the headline cost.

What a merchant cash advance actually is

A merchant cash advance is generally not written as an ordinary installment loan. It is generally drafted as a purchase of your future receivables: the provider buys a defined dollar amount of money your business has not yet collected, and pays you a smaller amount today for it. The contract usually calls the money you get the “purchase price” and the money the provider collects the “purchased amount” or “total purchased amount.” You will often not see the words loan, interest, principal, or borrower anywhere in it. That drafting choice is deliberate and it has legal consequences, discussed further down.

“One such product that has generated particular attention, and some concerns detailed below, is the "merchant cash advance" ("MCA") -- a product styled as a purchase of a business’ future receivables, that is often repaid daily based on a fixed percentage of daily sales.”

Federal Trade Commission, Bureau of Consumer Protection staff, "Strictly Business: An FTC Forum on Small Business Financing" (staff perspective), February 2020. https://www.ftc.gov/system/files/documents/reports/staff-perspective-paper-ftcs-strictly-business-forum/strictly_business_forum_staff_perspective.pdf
Reviewed 6 August 2026.

“MCA providers generally offer high-cost, short-term cash advances to small businesses to purchase a fixed amount of their future receivables. In exchange, the business must repay the advanced amount plus a "factor"-- often between 20% to 50% of that amount. The MCA provider generally collects a fixed percentage or amount (estimating the percentage) of the business’s daily revenue. Thus, the small business’s daily payments are supposed to rise or fall to reflect its daily sales. According to MCA providers, the business makes these payments until the MCA is repaid, or, alternatively, the business simply fails, in which case the repayment obligation is extinguished. Additionally, although MCAs do not technically include a set term length, they are typically repaid within a few months to one year.”

Read that last quote closely, because it describes the product as the industry describes it, and the gap between that description and what is in a specific contract is where most of the trouble lives. Two things in it are conditional, not guaranteed:

Payments are supposed to rise and fall with sales. Whether yours actually do depends on the wording of your reconciliation clause, and on whether the provider honours it.
The obligation is said to be extinguished if the business simply fails. Whether that is true of your agreement depends on its default terms, its personal guarantee, and what it says about bankruptcy.

How the money comes back out is usually one of three shapes: a fixed dollar amount debited by ACH every business day; a fixed amount debited weekly; or a stated percentage of sales or card receipts. For contractors, the fixed daily ACH is the common one, because most residential and commercial contractors do not run the kind of card-processing volume that a true percentage-of-sales split needs.

Why you receive less than the number on the contract

The purchased amount is not what you get. The purchase price is not always what you get either, because fees are commonly deducted before the wire goes out: origination or underwriting fees, ACH or program fees, and broker or ISO compensation. The number that matters to your business is the number that actually cleared into your bank account. Every cost calculation on this site starts from that figure and nothing else.

Regulators have alleged that some providers were not straight about this. The FTC alleged, of one provider, that the funding was thousands of dollars short of what was promised because of fees that were not disclosed, despite marketing that promised no upfront fees:

“Providing less funding than promised: The complaint alleges that when businesses received their funding from the defendants, it was often thousands of dollars less than promised. The shortfall was due to large supposed fees that were not disclosed to the business owners. This happened despite the defendants marketing promises of "no upfront fees."”

Federal Trade Commission press release, "FTC Action Results in Ban for Richmond Capital and Owner From Merchant Cash Advance and Debt Collection Industries and Return of More Than $2.7M to Consumers", 6 June 2022. https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-action-results-ban-richmond-capital-owner-merchant-cash-advance-debt-collection-industries
Reviewed 6 August 2026. This is an allegation resolved by a settlement order; read the FTC page for what the defendants agreed to.

“In addition, the complaint alleges that for years Yellowstone deceived potential customers about the amount of money they would receive, with the amount shown on the contract not reflecting additional fees that would be deducted. According to the complaint, these fees totaled hundreds and even thousands of dollars, and were not revealed to business owners until, in some cases, after their contracts were signed”

Federal Trade Commission press release, "FTC Alleges Merchant Cash Advance Provider Overcharged Small Businesses Millions", 3 August 2020. https://www.ftc.gov/news-events/news/press-releases/2020/08/ftc-alleges-merchant-cash-advance-provider-overcharged-small-businesses-millions
Reviewed 6 August 2026. Allegations in a complaint. The case was later settled; see the April 2021 release in the source list.

The practical instruction: do not compute anything from the contract headline. Wait for the deposit to land, look at the actual credited amount, and run the numbers on that. If the deal is already signed by then, you have signed before you knew the price.

A factor rate is not an interest rate

Merchant cash advances are usually priced with a factor rate — a multiplier such as 1.35 or 1.45. Multiply the purchased amount by the factor and you get what the provider collects. A factor of 1.45 on $50,000 means $72,500 comes back.

Why the two are not comparable

An interest rate is a rate per unit of time. It keeps running while the money is outstanding, and it stops when the money is repaid. A factor rate is a fixed multiplier. It is set at signing and it does not shrink because you paid the balance down, and in most agreements it does not shrink because you paid early either. Paying an MCA off in 60 days rather than 180 usually does not reduce what you owe at all. It just means you paid the same dollar cost over a third of the time, which makes the annualised cost roughly three times worse.

So “1.45” does not mean 45% a year. It means 45 cents on the dollar, in however many days the withdrawals take. Comparing a 1.45 factor against a bank line quoted at an annual percentage rate is not a comparison at all until you convert them onto the same footing.

The FTC staff perspective identified this exact comparison problem, and noted why federal consumer credit disclosure rules do not solve it:

“Notably, while the Truth-in-Lending Act requires the disclosure of annual percentage rate ("APR") and other key pieces of information in personal credit transactions, it generally does not apply to small business financing. Perhaps as a result, small business finance providers often describe the costs associated with their products very differently: While some lenders state the cost of their loans as an APR, others instead express it as the "total cost of capital" -- i.e., the total overall dollar amount consumers will pay in fees or costs beyond repaying the principal. Additionally, other finance providers use yet other metrics, like "interest rate," "fees," or "factor rate."”

That is why our free MCA cost calculator shows you four different cost figures instead of one, and labels the annualised figure as an estimate for comparison only.

Why the annualised cost gets so large

Short repayment periods do violent things to annualised cost. The same dollar cost spread over four months instead of twelve is roughly three times the annualised rate. Spread over ten days instead of a year, it is astronomical. The FTC staff perspective records the concern in general terms:

“Panelists at our Forum and other experts have expressed a variety of concerns about MCAs. First, they note that MCAs have very high costs -- including, in some cases, estimated APRs in the triple digits. As a result, many business owners who obtain MCAs may struggle to successfully repay them.”

A New York enforcement matter puts a specific number on one transaction. The New York Attorney General described a $10,000 advance repaid at $19,900 over ten days:

“One example presented to the court showed that the Richmond companies loaned $10,000 to a small business and required its owner to pay back $19,900 within 10 days, through daily payments of $1,999. As a result of the large daily payments and the short, 10-day repayment term, the annual interest rate for the merchant cash advance, including fees, came close to 4,000 percent — almost 250 times the legal interest rate.”

Office of the New York State Attorney General press release, "Attorney General James Announces Historic Judgment Against Predatory Lender", 2024. https://ag.ny.gov/press-release/2024/attorney-general-james-announces-historic-judgment-against-predatory-lender
Reviewed 6 August 2026. That is the Attorney General’s characterisation of one transaction in a case the court decided against the defendants. It is an extreme example and it is not a typical or average deal.

Read every annualised number, including ours, as an estimate

An annualised figure for an MCA is a comparison device, not a disclosed legal rate. The repayment period is an estimate the moment payments can vary with sales, and an MCA may not be legally characterised as a loan at all, so it may not disclose an annual percentage rate the way consumer credit must. Use an annualised number to compare one offer against another and against a bank product. Do not treat it as a term of the contract, because in most cases it is not one.

The reconciliation clause is the whole ballgame

If the product worked the way it is described, a slow month would automatically produce smaller withdrawals. The mechanism that is supposed to make that happen is called reconciliation, or a true-up. FTC staff flagged the failure of that mechanism as a specific concern, and said in terms what a failure could amount to:

“Third, two MCA providers at the Forum expressed concerns that, during the repayment of MCAs, some providers may fail to conduct promised "true-ups" or "reconciliations" to lower merchants’ daily payment amounts to reflect drops in their sales. As noted above, MCAs are designed to require businesses to repay a fixed percentage of their daily revenues. Accordingly, it would be concerning, and potentially unlawful, if MCA providers fail to adjust payment amounts to reflect a decrease in sales.”

Now look at what a reconciliation clause can be drafted to say. In a New York appellate decision, the agreement gave the provider the right to adjust payments at its own discretion:

“Here, with respect to a reconciliation provision, the agreement provides that the plaintiff "may, upon [United’s] request, adjust the amount of any payment due under this Agreement at [its] sole discretion and as it deems appropriate"”

LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 2020 NY Slip Op 01607 (App Div, 2d Dept), decided 4 March 2020. https://www.nycourts.gov/Reporter/3dseries/2020/2020_01607.htm
Reviewed 6 August 2026. The court treated that discretionary wording, together with the agreement’s default and bankruptcy terms, as supporting the argument that repayment was absolute rather than contingent.

A clause like that is not a protection. It is permission for the provider to say no. When you read your own agreement, the questions that decide whether reconciliation is real are:

Is the adjustment mandatory when revenue falls, or is it at the provider’s discretion?
Do you have to request it, and if so, how — in writing, by a specific method, within a specific window?
What must you supply with the request (bank statements, processor statements, a period of records)?
How fast must the provider respond, and what happens if it does not?
Do the full withdrawals keep coming while the request is pending? For a contractor in a slow month, a two-week response window at $575 a day is $5,750 that leaves anyway.
Is there a floor below which the payment will not drop, no matter how far revenue falls?

If reconciliation is discretionary, undefined, or has no deadline on the provider, you should assume the withdrawal will not move when your collections do — and you should price the deal on that assumption. Our red-flag checker puts these questions in a list you can work through against the actual document.

Renewals and stacking

The most common way a single advance becomes a structural problem is that it is not a single advance for very long. Two mechanisms drive it:

Renewal. Partway through repayment you are offered a new, larger advance. Part of the new money pays off the old balance — usually at the full uncollected purchased amount, not at a discount — and you receive the difference. You have paid the entire cost of the first advance, then paid a fresh factor on the amount that just retired it.
Stacking. A second provider funds you while the first is still collecting, so two or more withdrawals hit the same account on the same days, against the same receipts.

“One panelist noted that businesses desperate for funding often seek out MCAs in the short term because they are quick and easy to obtain, but then suffer negative long-term consequences. Such consequences include being forced to renew their advances or take out multiple MCAs at the same time, potentially encumbering the same receipts (a phenomenon known as "stacking"), in order to both meet their repayment obligations and avoid shutting down.”

The reason to model this before it happens rather than after is that the second withdrawal is not additive to a stable business. It is additive to a business whose cash position is already being drained by the first one. The calculator on this site has a stacking input for exactly that reason: it will show you the combined daily and monthly outflow, and what is left of your collections once both are paid.

The contract terms that decide what happens when it goes wrong

The factor rate decides what the deal costs if everything goes to plan. These clauses decide what happens to you if it does not, which for a contracting business is the more likely question.

Personal guarantee

A personal guarantee puts your own assets behind the obligation. Marketing and contract are not always the same thing. In the Yellowstone matter the FTC alleged the marketing promised no personal guaranty while the contracts required personal liability and pledged the business and its property as collateral:

“Specifically, the complaint states that Yellowstone promised that business owners would not be required to provide collateral or be subject to a personal guaranty. These promises appeared in online ads and other forms of marketing, but in many instances Yellowstone’s contracts actually required business owners to be personally liable if their business failed to make repayments, as well as put the business and all of its property up as collateral.”

“Deceiving consumers about personal guarantees: The defendants’ websites falsely claimed that their cash advances required "no personal guaranty of collateral from business owners," meaning that the people obtaining financing on behalf of companies would not have their personal possessions treated as collateral. In fact, their contracts did include those requirements.”

Believe the signed document, never the sales call, never the ad, never the broker’s summary email.

Security interest and UCC filings

Many agreements take a security interest in business assets and authorise a UCC-1 financing statement. For a contractor that can reach receivables, equipment, tools and vehicles. A blanket filing on your receivables also tends to be visible to anyone who searches, which can affect your ability to get a bank line, a bond, or an equipment loan later. Ask specifically what will be filed, against what collateral, and what it takes to get it terminated after payoff.

Default definitions

Read the default section before you read the pricing section. Default is frequently defined far more broadly than “you stopped paying.” It can be triggered by a bounced ACH, by changing your bank account, by closing or moving your processing, by taking other financing, by a breach of a representation, or by a materially adverse change in the business. In the appellate decision quoted above, the agreement made a bankruptcy filing or an admission of inability to pay an event of default that accelerated the full unpaid purchased amount.

Confessions of judgment

A confession of judgment is a term under which you give up in advance your right to contest a collection action. FTC staff described the mechanism and the limits of federal consumer protection here:

“In particular, in recent years, some MCA providers have required that business owners execute a "confession of judgment" ("COJ") -- in which the business owner waives his or her right to contest any collection lawsuit to obtain the unpaid MCA amount and collection-related fees. Although the FTC’s Credit Practices Rule prohibits the use of COJs in personal credit contracts, it generally does not apply to contracts with small business.”

“For example, if an MCA provider is required by contract to lower a merchant’s daily payments if revenue falls, but instead simply declares the merchant to be in default and files a COJ, this conduct could violate the FTC Act. MCA providers should not exercise default remedies – such as enforcing a COJ – in the absence of a default condition.”

“Forcing consumers and businesses into confessions of judgment: The defendants also required businesses and their owners to sign confessions of judgment, which allow the defendants to immediately obtain an uncontested judgment in case of an alleged default. The complaint alleges that the defendants illegally and unfairly used these confessions of judgment to unexpectedly and improperly seize consumers’ personal and business assets.”

The FTC staff perspective also records that New York enacted a law restricting the use of confessions of judgment against out-of-state small businesses. Whether any confession of judgment in your agreement is enforceable depends on the governing state’s law and on the facts, which is a question for your attorney and not for a web page.

ACH authorisation

The agreement will authorise debits from a named account. Check how broad that authorisation is: how many accounts it reaches, whether it permits re-presentment after a failed debit, whether it permits additional debits for fees, penalties or NSF charges, and what your written revocation rights are. Regulators have alleged withdrawals continuing after the agreed amount was collected:

“In its agreements with consumers, RCG tells businesses that they can receive an upfront amount of cash in exchange for allowing RCG to make daily withdrawals from the businesses’ bank accounts up to a "Total Purchased Amount." The amended complaint alleges that the defendants frequently continued to make the withdrawals well after the promised amount had been withdrawn, in one instance taking more than $75,000 without permission.”

Federal Trade Commission press release, "FTC Files Amended Complaint Seeking Civil Penalties Against Small Business Financing Providers", 14 June 2021. https://www.ftc.gov/news-events/news/press-releases/2021/06/ftc-files-amended-complaint-seeking-civil-penalties-against-small-business-financing-providers
Reviewed 6 August 2026.

“According to the FTC’s complaint, Yellowstone has regularly withdrawn hundreds or thousands of dollars from businesses’ accounts for days after customers had repaid the full amounts owed in their contracts. In some cases, Yellowstone would only refund this money when businesses complained, and even then the refunds could take weeks or months, leaving small businesses without needed cash on hand. The complaint also cites examples of businesses being left with bank overdraft fees as a result of the unauthorized withdrawals.”

Whatever the agreement says, count the debits yourself. Keep a running total against the purchased amount from day one, and know the exact date the last payment should fall.

Governing law, venue and collection remedies

An out-of-state governing law clause changes which state’s rules are argued to apply to your deal, including its rules on recharacterisation and on rate limits. An out-of-state venue clause decides where you would have to defend, which for a two-truck contractor two thousand miles away is often the same as not defending. Look also at what the agreement lets the provider do on default: attorney fee and collection cost shifting, contact with your customers or your payment processor, and the right to debit accounts you did not name.

The label on the agreement does not settle its legal treatment

This is the single most important legal point on this page, and it cuts both ways.

Because a merchant cash advance is generally drafted as a purchase of receivables rather than a loan, the rate limits that apply to business loans in a given state may not automatically apply to it. That is the reason this resource will never publish a “maximum MCA rate” for any state. There is no such number to publish honestly.

But calling the agreement a purchase does not make it one. Courts look at what the transaction really is. A New York appellate court stated the test and the factors:

“To determine whether a transaction constitutes a usurious loan, it "must be ‘considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it’"”

“Unless a principal sum advanced is repayable absolutely, the transaction is not a loan. Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy”

LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 2020 NY Slip Op 01607 (App Div, 2d Dept), decided 4 March 2020. https://www.nycourts.gov/Reporter/3dseries/2020/2020_01607.htm
Reviewed 6 August 2026. That is New York law as stated by the Appellate Division, Second Department. Other states analyse the question differently, and the outcome turns on the specific agreement.

Notice what those three factors are. They are the same clauses discussed above: reconciliation, term, and what happens on bankruptcy. That is not a coincidence. The terms that determine whether the deal will crush you in a slow month are the same terms a court would look at in deciding whether the deal is what it says it is.

What this means for you, stated carefully

Whether any particular agreement is a true receivables purchase or is instead treated as a disguised loan is fact-specific. It depends on the actual wording of your contract and on the law of the state whose law governs. Nobody can tell you the answer for your agreement from a general description of the product, and this page is not trying to. What it can tell you is which clauses the question turns on, so that you and your attorney read those clauses first.

What regulators have actually alleged

These are official enforcement records, quoted and linked. They describe conduct alleged against specific defendants in specific matters. They are not a description of the industry as a whole, and nothing here should be read as a claim about any company not named in the official source itself.

Federal Trade Commission — RCG Advances / Richmond Capital / RAM Capital / Viceroy

“The FTC alleged that since 2015, the defendants deceived small businesses and other organizations in violation of the FTC Act and the Gramm-Leach-Bliley Act by requiring personal guarantees and upfront fees from consumers after representing they wouldn’t make these demands, providing less funding to consumers than promised, and by debiting more from consumers’ bank accounts than they said they would.”

Federal Trade Commission press release, "Merchant Cash Advance Providers Banned from Industry, Ordered to Redress Small Businesses", 5 January 2022. https://www.ftc.gov/news-events/news/press-releases/2022/01/merchant-cash-advance-providers-banned-industry-ordered-redress-small-businesses
Reviewed 6 August 2026.

“The agency also alleged that the defendants made unauthorized withdrawals from consumers’ accounts and used unfair collection practices, including sometimes threatening physical violence. In addition, the FTC alleged that the defendants illegally weaponized "confessions of judgment," contractual terms that allowed defendants to pursue customers’ personal assets in court and obtain uncontested judgments against them.”

“The Federal Trade Commission’s lawsuit against RCG Advances, LLC and Robert Giardina has led to a court order that permanently bans the company and owner from the merchant cash advance industry for deceiving and threatening small businesses and their owners.”

Federal Trade Commission — Yellowstone Capital / Fundry

“Yellowstone Capital, a provider of merchant cash advances, will pay more than $9.8 million to settle Federal Trade Commission charges that it took money from businesses’ bank accounts without permission and deceived them about the amount of financing business owners would receive and other features of its financing products.”

“In connection with other claims they make to consumers, the defendants will be required to clearly and conspicuously disclose any fees that will be paid by consumers for the financing, as well as the actual amount of money that a consumer will receive after the fees are charged.”

Federal Trade Commission press release, "Cash Advance Firm to Pay $9.8M to Settle FTC Complaint It Overcharged Small Businesses", 22 April 2021. https://www.ftc.gov/news-events/news/press-releases/2021/04/cash-advance-firm-pay-98m-settle-ftc-complaint-it-overcharged-small-businesses
Reviewed 6 August 2026. Worth noting for a different reason: the relief the FTC obtained is a good description of the two numbers you should insist on knowing before you sign — every fee, and the actual amount that will reach your account.

New York Attorney General — the clearest illustration that the label is not the end of the analysis

The New York Attorney General sued three merchant cash advance companies and their principals. The office described the transactions not as merchant cash advances but as loans disguised as merchant cash advances, and a New York court decided the matter against the defendants.

“New York Attorney General Letitia James today announced a historic court judgment against three merchant cash advance companies, Richmond Capital Group, Ram Capital Funding, and Viceroy Capital Funding (Richmond companies) and their principals, Jonathan Braun, Tzvi Reich, Robert Giardina, and Michelle Gregg, for usury and fraud due to illegally high-interest, short-term loans and undisclosed fees. The judgment amount against the Richmond companies is more than $77,298,631”

“The Office of the Attorney General (OAG) filed a lawsuit against the Richmond companies for violating multiple state laws, including Executive Law § 63(12), due to their illegal, high-interest loans disguised as merchant cash advances.”

“The lawsuit filed by the Office of the Attorney General (OAG) alleged that the Richmond companies’ merchant cash advances, which are a form of short-term, high-interest funding for small businesses, were in fact illegal, high-interest loans with astronomical and illegal rates. The court order requires the Richmond companies to cancel the debt owed by thousands of small businesses nationwide and to repay all interest and overcharges collected, totaling tens of millions of dollars.”

Office of the New York State Attorney General press release, "Attorney General James Scores Major Victory for Small Businesses Harmed by Predatory Lender", 2023. https://ag.ny.gov/press-release/2023/attorney-general-james-scores-major-victory-small-businesses-harmed-predatory
Reviewed 6 August 2026.

That is the point, made by an enforcement authority and a court rather than by us: writing “purchase of future receivables” at the top of the page does not decide how the law treats what is underneath it. It does not follow that any other agreement is a disguised loan. It follows that the question is open and is answered on the facts.

Some states now require commercial financing disclosures

Federal consumer credit disclosure law generally does not reach small business financing. Several states have responded with their own commercial financing disclosure statutes, which are a separate thing from rate limits and should never be confused with them. Two examples, quoted from the statutes themselves:

“(b) Except as provided in Section 22803, a provider subject to this division shall disclose all of the following: (1) The total amount of funds provided. (2) The total dollar cost of the financing. (3) The term or estimated term. (4) The method, frequency, and amount of payments. (5) A description of prepayment policies. (6) The total cost of the financing expressed as an annualized rate.”

California Financial Code section 22802 (commercial financing disclosures; added by SB 1235, Stats. 2018, ch. 1011, amended by SB 33, Stats. 2023, ch. 376), text as published by California Legislative Information. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=FIN§ionNum=22802
Reviewed 6 August 2026. California Financial Code § 22802. Note item (6): California requires the annualised cost to be disclosed for covered commercial financing.

“(c) The estimated annual percentage rate, using the words annual percentage rate or the abbreviation "APR", expressed as a yearly rate, inclusive of any fees and finance charges, and calculated in accordance with the federal Truth in Lending Act, Regulation Z, 12 C.F.R. § 1026.22, based on the estimated term of repayment and the projected periodic payment amounts, regardless of whether such act or such regulation would require such a calculation.”

New York Financial Services Law section 803 (sales-based financing disclosure requirements), Financial Services Law article 8, text as published by the New York State Senate. https://www.nysenate.gov/legislation/laws/FIS/803
Reviewed 6 August 2026. New York Financial Services Law § 803, the sales-based financing disclosure section of article 8.

What a disclosure law is, and what it is not

A commercial financing disclosure statute requires certain information to be given to you before you sign. That is not the same thing as capping what a provider may charge, and it is not the same thing as deciding whether a given agreement is a loan. A state can require an annualised cost disclosure on a transaction whose legal character as a loan is unsettled — New York’s section 803 does exactly that, requiring the calculation “regardless of whether such act or such regulation would require such a calculation.” Coverage, thresholds, exemptions and effective dates all differ by state, and a provider being registered or making a disclosure tells you nothing about whether the deal is good for you.

A state-by-state matrix of these requirements is planned as a separate phase of this resource. It will keep disclosure duties, business-loan rate limits, and the recharacterisation question in separate fields, and it will not publish a maximum rate for any state, because that number does not exist in a form that can be stated honestly.

What to do before you sign

Run the numbers on the cash that actually lands. Use the free MCA cost calculator. It shows total dollar cost, factor rate, cost as a percentage of the cash you received, an estimated annualised cost, and what percentage of your monthly collections the withdrawals consume — including after stacking.
Read the contract against a list. The MCA contract red-flag checker walks the provisions that decide what happens in a bad month.
Answer the 18 questions. The before you sign worksheet is the version you can print and put in front of the provider, the broker, and your attorney. If any question cannot be answered from the document, that is your answer.
Price the alternatives first, not last. The safer alternatives guide compares bank lines, SBA-backed financing, equipment financing, invoice financing, supplier terms, deposits where the law permits them, progress billing, cards, owner capital, expense reduction, renegotiated schedules, credit unions and CDFIs. None of them is always available and none is always cheaper. Several take longer, which is precisely why they should be started before the emergency.
Have an attorney read it. A business-finance attorney reading a merchant cash advance agreement is cheap relative to a personal guarantee, a blanket UCC filing, and a confession of judgment.

Sources

Every legal statement on this page is drawn from one of the following primary sources. Secondary commentary was used only to locate these documents and is cited nowhere. Each was retrieved and read in full at the review date shown.

Federal Trade Commission, Bureau of Consumer Protection staff, "Strictly Business: An FTC Forum on Small Business Financing" (staff perspective), February 2020. https://www.ftc.gov/system/files/documents/reports/staff-perspective-paper-ftcs-strictly-business-forum/strictly_business_forum_staff_perspective.pdf — reviewed 6 August 2026.
Federal Trade Commission press release, "FTC Alleges Merchant Cash Advance Provider Overcharged Small Businesses Millions", 3 August 2020. https://www.ftc.gov/news-events/news/press-releases/2020/08/ftc-alleges-merchant-cash-advance-provider-overcharged-small-businesses-millions — reviewed 6 August 2026.
Federal Trade Commission press release, "Cash Advance Firm to Pay $9.8M to Settle FTC Complaint It Overcharged Small Businesses", 22 April 2021. https://www.ftc.gov/news-events/news/press-releases/2021/04/cash-advance-firm-pay-98m-settle-ftc-complaint-it-overcharged-small-businesses — reviewed 6 August 2026.
Federal Trade Commission press release, "FTC Files Amended Complaint Seeking Civil Penalties Against Small Business Financing Providers", 14 June 2021. https://www.ftc.gov/news-events/news/press-releases/2021/06/ftc-files-amended-complaint-seeking-civil-penalties-against-small-business-financing-providers — reviewed 6 August 2026.
Federal Trade Commission press release, "Merchant Cash Advance Providers Banned from Industry, Ordered to Redress Small Businesses", 5 January 2022. https://www.ftc.gov/news-events/news/press-releases/2022/01/merchant-cash-advance-providers-banned-industry-ordered-redress-small-businesses — reviewed 6 August 2026.
Federal Trade Commission press release, "FTC Action Results in Ban for Richmond Capital and Owner From Merchant Cash Advance and Debt Collection Industries and Return of More Than $2.7M to Consumers", 6 June 2022. https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-action-results-ban-richmond-capital-owner-merchant-cash-advance-debt-collection-industries — reviewed 6 August 2026.
Office of the New York State Attorney General press release, "Attorney General James Scores Major Victory for Small Businesses Harmed by Predatory Lender", 2023. https://ag.ny.gov/press-release/2023/attorney-general-james-scores-major-victory-small-businesses-harmed-predatory — reviewed 6 August 2026.
Office of the New York State Attorney General press release, "Attorney General James Announces Historic Judgment Against Predatory Lender", 2024. https://ag.ny.gov/press-release/2024/attorney-general-james-announces-historic-judgment-against-predatory-lender — reviewed 6 August 2026.
LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 2020 NY Slip Op 01607 (App Div, 2d Dept), decided 4 March 2020. https://www.nycourts.gov/Reporter/3dseries/2020/2020_01607.htm — reviewed 6 August 2026.
California Financial Code section 22802 (commercial financing disclosures; added by SB 1235, Stats. 2018, ch. 1011, amended by SB 33, Stats. 2023, ch. 376), text as published by California Legislative Information. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=FIN§ionNum=22802 — reviewed 6 August 2026.
New York Financial Services Law section 803 (sales-based financing disclosure requirements), Financial Services Law article 8, text as published by the New York State Senate. https://www.nysenate.gov/legislation/laws/FIS/803 — reviewed 6 August 2026.
New York Financial Services Law article 8, "Commercial Financing" (sections 801-812), text as published by the New York State Senate. https://www.nysenate.gov/legislation/laws/FIS/A8 — reviewed 6 August 2026.

Enforcement descriptions above are allegations and orders as stated in the official record, quoted verbatim and attributed. No company is named here except as an official source names it.

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