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The short answer
Revenue-based financing takes a share of sales. A merchant cash advance takes fixed daily debits. Both can cost far more than they look.
Convert every offer to an APR. If you already carry advances, price a takeout loan before you add another.
On this page
- How revenue-based financing works for dispensaries
- MCA traps and stacking
- MCA takeout and refinancing
- What regulators have done
- 280E and cash-flow restructuring
- Bad-credit options and cost
- Factor rate vs APR
- A worked example: one advance, two views of cost
- A 30 day plan to get out of advances
- Terms to know
- Frequently asked questions
How revenue-based financing works for dispensaries
A provider advances cash and takes back a fixed total. You repay it from a share of sales or from set debits.
The total is the advance times a factor rate. A $100,000 advance at 1.35 repays $135,000.
Factor Rate to APR Converter
See what a factor rate costs once daily payments shrink your balance.
How to use this: Enter the offer terms. The tool shows total payback, daily payment, share of sales and two APR views.
MCA traps and stacking
The first advance feels manageable. The second fills a hole the first created.
By the third, daily debits can eat the margin on every sale.
Warning signs
- Daily debits above what your cash register can sustain.
- New advances used to pay old ones.
- A provider that will not state the total payback in writing.
- Language that lets the provider change the debit amount.
MCA takeout and refinancing
A takeout loan pays off several advances with one cheaper loan. The goal is lower daily cash drain.
Ask every provider for a payoff figure dated within the week. Then ask lenders for a takeout quote against those exact numbers.
What regulators have done
The FTC has acted against advance providers. In April 2021, Yellowstone Capital and others agreed to surrender $9,837,000.
The FTC alleged it kept debiting accounts after advances were repaid. It also alleged the firm misled businesses about the funding they would receive.
A June 2022 order permanently banned RCG Advances and its owner from the industry. The order set payments of $1.5 million up front and over $1.2 million later.
The CFPB covers merchant cash advances as business credit in its small business lending rule.
280E and cash-flow restructuring
Section 280E can raise your effective tax rate on a plant-touching business. Federal scheduling is in flux, so confirm the current rule with a tax professional.
Lenders read the result in your statements. Lower after-tax cash flow means lower borrowing power.
Show the tax plan in your file. Lenders trust a business that budgets for its tax bill.
Bad-credit options and cost
Sales-based underwriting often weighs credit less. It can still move price.
| Option | What helps you qualify | Typical trade-off |
|---|---|---|
| Revenue-based financing | Steady daily sales | Higher factor rate |
| Secured loan on inventory or equipment | Clear collateral | Lower advance on the asset |
| Owner-funded bridge | Cash from partners | Dilution or shared control |
| Receivables financing | Creditworthy buyers | Only for wholesale sellers |
Factor rate vs APR
A factor rate hides time. The same 1.35 means one thing over six months and another over six weeks.
Use the converter above for each offer. Write down the APR next to the factor rate.
Then compare it to a line or term loan quote for the same dollars.
A worked example: one advance, two views of cost
These numbers are an illustration, not an offer. They match the converter above.
An operator takes $100,000 at a 1.35 factor over 180 days. Total payback is $135,000. The cost is $35,000.
The daily debit is $750. On $4,000 of daily sales, that is 18.75 percent of every day's receipts.
A simple annualized rate is about 71 percent. Because the balance shrinks every day, the declining-balance APR is about 128 percent.
| Measure | Result |
|---|---|
| Total payback | $135,000 |
| Cost of capital | $35,000 |
| Daily debit | $750 |
| Share of daily sales | 18.75% |
| Simple annualized rate | About 71% |
| Declining-balance APR | About 128% |
The gap between the two rates is why the factor rate alone misleads.
A 30 day plan to get out of advances
Week 1: list every advance
Balance, daily debit and end date.
Week 2: get payoff letters
One dated letter per provider.
Week 3: shop takeout quotes
Ask for total repaid and monthly cash flow.
Week 4: close and cancel debits
Confirm each provider releases its claim.
Pay attention to timing. Debits keep running until each payoff clears.
Terms to know
| Term | Plain meaning |
|---|---|
| Factor rate | A multiplier that sets the total you repay. |
| Reconciliation | A right to adjust daily debits when sales change. |
| Confession of judgment | A clause that lets a provider win a judgment without a trial. |
| Stacking | Taking a new advance while another is still open. |
| Takeout loan | A new loan that pays off one or more advances. |
| Holdback | The share of sales the provider collects. |
Frequently Asked Questions
Sources and further reading
- FTC, Yellowstone Capital cash advance settlement (April 22, 2021)
- CFPB, Small Business Lending Rule FAQs
- FinCEN guidance FIN-2014-G001, Marijuana Businesses
- FTC case page, RCG Advances, LLC
- 26 U.S.C. 280E