No single person invented the merchant cash advance. It grew out of a much older idea — selling your receivables at a discount to get paid sooner — that was repackaged in the late 1990s around credit card sales, scaled after the 2008 credit crunch, and finally pulled under state disclosure law in the 2020s.
Who invented the merchant cash advance?
No one person or company invented it. The merchant cash advance is a late-1990s repackaging of factoring, the centuries-old practice of selling receivables at a discount for cash today. What was new was the receivable. Instead of buying unpaid invoices a business had already issued, funders bought a slice of a merchant's future credit card sales and collected it automatically through the card processor.
Card sales were the unlock for a practical reason. Processors settled in daily batches and could split a batch at the source, so repayment did not depend on a business owner remembering to send a payment, and the funder could read processing volume as underwriting data instead of asking for collateral. The legal structure followed the mechanics: this was a purchase of future receivables rather than a loan, which is why the paperwork to this day says purchase price and purchased amount rather than principal and interest. If that distinction is new to you, start with what a merchant cash advance actually is, and note that its closest relative, invoice factoring, buys receivables you have already earned.
Why the 2008 credit crunch turned a niche product into an industry
The product scaled when bank credit contracted. After 2008, businesses that had renewed a line of credit every year without thinking about it found the renewal simply gone, and a funder who could decide on three months of deposits in a day offered something a bank could not match at any price: an answer that arrived before the opportunity closed.
Two technical changes did the rest. Collection moved from splitting the card batch to a fixed ACH debit against the business bank account, which meant contractors, wholesalers, medical practices and trucking companies with little or no card volume became fundable for the first time. And online applications combined with bank-statement data made underwriting cheap enough to be worth doing on small amounts. The direction of travel still shows up in the survey data: in the Federal Reserve Banks' 2026 Small Business Credit Survey, 38% of firms applied for a loan, line of credit or merchant cash advance in the prior 12 months, and the share of applicants going to online fintech lenders rose from 17% in the 2020 survey to 29% in the 2025 survey. For the mechanics of how a modern advance runs from application to final remittance, see our step-by-step walkthrough, and compare it against a short-term business loan if fixed monthly payments suit your cash flow better.
How disclosure law caught up in the 2020s
Regulation arrived because the pricing was hard to compare. The turn began in California, where SB 1235 was approved by the Governor on September 30, 2018 and added a commercial financing disclosure division to the state Financial Code, reaching merchant cash advances alongside loans. New York's commercial financing disclosure law followed, several other states have since enacted their own versions, and federal rulemaking under section 1071 of the Dodd-Frank Act pushed in the same direction by requiring small-business credit application data to be collected and reported.
The practical result is that on a covered transaction you are now entitled to see the total dollar cost and the payment terms in a standard format, before you sign, so two offers can be laid side by side. That matters more than it sounds: 60% of firms that borrowed from online lenders in the same Federal Reserve survey reported that their actual borrowing costs came in higher than they had expected, against 37% of borrowers at small banks. Which states require what, and what a compliant disclosure has to contain, is tracked in our state-by-state commercial financing disclosure guide.
What that history should change about how you shop today
Read as a whole, the history is a pricing story. The advance exists because speed and flexible underwriting have real value to a business that cannot wait, and it is priced accordingly. So the only comparison that means anything is total dollars repaid against what the money will earn or save you over the same period — not a factor rate against an interest rate, which are different units and are not comparable on their face. What a factor rate is covers that conversion properly.
The second lesson is about competition. The early market was one funder, one answer, take it or leave it. That is still how it works if you apply to a single funder directly. The Broker Shop is a broker rather than a funder: one application goes to the funders whose guidelines you actually meet, you see the strongest offers next to each other, and the funder pays our commission, so it is free to apply and checking your options won't affect your credit score. If you are comparing providers, our guide to the best merchant cash advance companies explains what separates them, and whether an advance is a good idea is worth reading before you decide it is the right tool at all.
Frequently Asked Questions
Is a merchant cash advance the same thing as factoring?
They are cousins rather than twins. Both are purchases of receivables rather than loans, which is the family resemblance. Invoice factoring buys a specific invoice you have already issued and are waiting to be paid on, and the customer who owes it often pays the factor directly. A merchant cash advance buys a slice of revenue you have not earned yet, and it is collected from your own deposits on a fixed daily or weekly schedule. Earned receivables versus future receivables is the whole difference, and it is why the two are underwritten, priced and documented differently.
When did states start requiring disclosures on merchant cash advances?
The shift began with California's SB 1235, which the Governor approved on September 30, 2018 and which added a commercial financing disclosure division to the state Financial Code, though the disclosures themselves took effect only once the state finished its implementing regulations. New York's commercial financing disclosure law followed, and several other states have since adopted their own. The common thread is that a covered offer has to state the total dollar cost and the payment terms in a standard format so two offers can be compared directly. Our state-by-state guide tracks which requirements are in force where.
Sources: Federal Reserve Banks — 2026 Report on Employer Firms, Small Business Credit Survey (38% of firms applied for a loan, line of credit or merchant cash advance in the prior 12 months; online fintech lender applicants rose from 17% in the 2020 survey to 29% in the 2025 survey; 60% of online-lender borrowers reported higher-than-expected borrowing costs, against 37% at small banks). California Legislative Information — SB 1235 (Glazer), Commercial financing: disclosures, Chapter 1011, approved by the Governor September 30, 2018. Consumer Financial Protection Bureau — Small Business Lending Rule (section 1071).
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One 2-minute application is matched to the funders whose guidelines you meet. It's free, and checking your options won't affect your credit score.
See What I Qualify For →The bottom line: The merchant cash advance is an old idea — selling tomorrow's receivables for cash today — running on modern plumbing, and the history says the only sane way to shop for one is on total dollars repaid against what the money will earn you.