Merchant cash advance (MCA)

Definition

Short-term financing repaid from a business's daily card sales or deposits.

Why It Matters

It is the most expensive money a small business commonly takes, and it hides well. The daily debits run through the bank statements while the P&L shows nothing unusual. Some agreements carry a confession of judgment, which lets the funder take a judgment without a lawsuit. A target that has taken one is telling you something about its cash flow. Read three months of bank statements for daily fixed debits before trusting any earnings figure.

In numbers: A shop that took a $80,000 advance repays $104,000 through 15% of daily card sales; the debits show in the bank statements, not the P&L, which is where diligence finds them.