Question 1

What does "revenue-based financing" actually mean?

Accepted Answer

Revenue-based financing is an umbrella term for products where qualification and repayment are anchored to your revenue or receivables — not a credit score minimum or an amortization schedule set independently of how your business performs. The category includes ACH merchant cash advances, CC split MCAs, invoice factoring, accounts receivable financing, and purchase order financing. What they share: approval driven by revenue more than credit score, repayment sourced from revenue or receivables, and faster access than traditional bank financing.

Question 2

What's the difference between ACH MCA and CC split MCA?

Accepted Answer

Both are merchant cash advances — a purchase of future receivables — but repayment works differently. ACH funding debits a fixed dollar amount from your business bank account daily or weekly, regardless of that day's sales. CC split deducts a fixed holdback percentage (typically 10–20%) from your daily card sales at the processor. ACH payments do not flex with revenue; CC split payments do. ACH funding assesses total deposits from all sources; CC split only looks at card processing volume. ACH typically carries lower factor rates (1.15–1.40x vs. 1.25–1.50x) but creates more pressure on slow days.

Question 3

How does invoice factoring differ from a merchant cash advance?

Accepted Answer

A merchant cash advance is based on your future revenue — lump sum upfront, repaid from daily sales. Invoice factoring is based on work you have already done — you sell specific outstanding B2B invoices to a factor at a discount, and the factor collects from your customers directly. MCAs are open to most businesses with consistent revenue regardless of whether customers are B2B or B2C. Invoice factoring requires B2B or B2G invoices with net payment terms. The factor cares more about your customers' creditworthiness than yours. Factoring is often cheaper than an MCA on a per-dollar, per-day basis but requires creditworthy commercial customers.

Question 4

What's the difference between invoice factoring and A/R financing?

Accepted Answer

Both use outstanding invoices, but the structure is different. Invoice factoring: you sell invoices to the factor; the factor owns them and collects directly from your customers. A/R financing: your invoices are collateral for a revolving line of credit; you keep ownership and continue collecting from customers yourself. Factoring is typically easier to qualify for (customer credit-driven) and faster to set up, but your customers know about it. A/R financing is confidential — your customers never know — but typically requires stronger business credit and an established track record.

Question 5

Which revenue-based financing product is right for my business?

Accepted Answer

The best product depends on your business model. If you accept mostly card payments and want payments that flex with revenue, CC split MCA. If you accept mixed payment types (cash, check, ACH) and want the simplest structure, ACH MCA. If you are a B2B business with outstanding invoices from creditworthy customers, invoice factoring. If you are an established B2B business and want to keep collections in-house and confidential, A/R financing. If you have confirmed purchase orders you cannot afford to fulfill, purchase order financing.

Question 6

Can I qualify with bad credit?

Accepted Answer

It depends on the product. ACH and CC split MCAs are the most credit-tolerant — many funders approve scores as low as 500. Invoice factoring approval depends primarily on your customers' credit, not yours, so your personal score matters very little. A/R financing typically requires a 600+ score and established business history. Purchase order financing, like factoring, focuses on the quality of the customer and purchase order rather than your personal credit. Across all these products, demonstrated revenue or receivables volume matters more than credit score.

Question 7

How fast can I get funded?

Accepted Answer

ACH and CC split MCAs are the fastest — same-day funding is realistic for complete applications submitted before late morning. Invoice factoring requires 5–10 business days to set up the initial relationship (underwriting, customer verification, UCC filings), but once established, individual invoices can be funded same day. A/R financing takes 5–14 days to set up a facility. Purchase order financing typically takes 3–10 business days. For urgent capital needs, an MCA is almost always faster than the receivables-based products.

Question 8

What are the true costs I should compare across these products?

Accepted Answer

Each product prices differently, making apples-to-apples comparison difficult. MCAs use a factor rate (total repayment = advance × factor rate) — a 1.35 factor on $50,000 means you repay $67,500 total regardless of speed. Invoice factoring charges a discount rate (typically 1–5% per 30 days) on each invoice — faster customer payment means lower total cost. A/R financing charges interest on drawn balances, similar to a line of credit. Purchase order financing charges 2–6% per 30 days on the funded amount. To compare an MCA to a traditional loan on an equivalent basis, use the factor rate to APR calculator. The cheapest product is not always the best — speed, flexibility, and qualification requirements all matter.

	ACH MCA	CC Split MCA	Invoice Factoring	A/R Financing	PO Financing
Speed to fund	Same day–48 hrs	Same day–48 hrs	5–10 days setup, then same day	5–14 days setup	3–10 days
Typical cost	1.15–1.40x factor	1.25–1.50x factor	1–5% / 30 days	Prime +3–8%	2–6% / 30 days
Payments flex?	No — fixed daily ACH	Yes — % of card sales	Faster pay = lower cost	Yes — draw as needed	No — lump repayment
Min. credit score	~500+	~500+	Customer's credit	600+	Customer's credit
Collateral	None	None	Invoices (sold)	Invoices (pledged)	PO + invoice
Customer notified?	No	No	Yes — factor collects	No — you collect	Yes — funder pays supplier
Requires B2B invoices?	No	No	Yes	Yes	Yes (confirmed PO)

Funding Based on Earnings

What Is Revenue-Based Financing?

The Five Products Under This Umbrella

All Five Products, Side by Side

What Funders Actually Look At

Who Uses Revenue-Based Financing

Restaurants & Food Service

Trucking & Freight

Staffing & Professional Services

Contractors & Home Services

Importers & Distributors

Healthcare & Medical Billing

Benefits & Considerations

Benefits

Considerations

Frequently Asked Questions

Free Tools to Help You Prepare

Factor Rate to APR

MCA vs. Factoring

MCA vs. Line of Credit

Financial Health Checklist

Related Products & Resources

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