A seasonal business is one where there are predictable, cyclical fluctuations in sales throughout the year. Any business that is in a store or mall frequented by vacationers and holiday shoppers is likely to be seasonal, as are businesses that are based on an annual event like spring greenery, fireworks for the Fourth of July, Christmas trees and decorations, and tax preparation. For owners like these, the off-season is when the trouble starts. The not-so-fun part of business ownership is that you still need to pay rent and expenses, yet receive little or no sales revenue. Getting the business through the off-season can be a challenge; often, owners go into debt to stay afloat.
If owners find themselves facing such difficulties, they may be tempted to go with a merchant cash advance, because the money is quick and the paperwork is light. What happens when there are few sales and less cash to cover the payments? Too often, a short-term cash flow problem makes the deal attractive to merchants, who then lock themselves into deals for the long term. Some help does exist in 2026, and most of it starts with the agreement you signed.
Technically, Not a Loan
A merchant cash advance is, technically, not a loan. Basically, it is when a funding company gives you cash in exchange for a percentage of your future receivables and the “theory” is that the funding company is “purchasing” a portion of your receivables before you have even received payment for them. It started by targeting retail merchants who used credit cards for sales. Now they cast a much wider net. The funding company has direct access to your bank account and receives a specified daily or weekly sum, supposedly a percentage of revenue that has been collected. Factor rates rather than interest rates are used. That may seem like a semantics issue, but it is not.
There are two ways merchant cash advance providers collect on their money. One is by taking a fixed percentage of the merchant’s receivables, as described in the contract, right off the top until the advance is repaid. That means slower sales produce a smaller payment. The second method involves set daily or weekly ACH withdrawals of the specified amount plus fees until the funds are repaid. Slow month, same payment. That can be a real problem if the company is seasonal, since the fixed ACH amounts don’t go down in an off season. A daily payment of hundreds of dollars can strain cash flow, and it could cause a default.
For a seasonal owner, the key clause is a reconciliation provision, meaning that the funder, at the business’s request, adjusts the daily or weekly payments to the real amount that you have collected from your receivables. In the off-season, your sales will be down and you shouldn’t have to pay much. The reason it’s mandatory is that the funder, in an MCA, is supposed to be assuming the risk that you collect receivables, and the funder’s recourse is limited to that. According to the courts, the reconciliation must be mandatory and absolute. If the provision is merely permissive - that is, if it states the funder ‘may’ reconcile the payments - the merchant can’t compel the funder to reconcile, and this is a condition that courts will use to say it is a loan. Likewise, if the funder could collect the advance in any way it chose, that too is a sign of a loan. When you are a seasonal business, off-season is the time to ask for the reconciliation. It doesn’t do you any good to have the reconciliation provision if it doesn’t become activated until after your season is over.
May Be Considered a Loan Under the Law
A Merchant Cash Advance (MCA) may be considered a loan under the law, even though the documents say you are selling future receivables to the funder. The courts have said that the following features are signs that it is a loan, not the purchase of receivables: the payback is set at a fixed amount per day or week, with no mandatory reconciliation; there is a personal guarantee; and/or the agreement includes a confession of judgment. If a court decides it is a loan, then state usury laws apply. New York’s criminal usury cap is 25%. Exceed that and the whole deal can be voided. The effective annual percentage rates (APR) of MCAs typically range from about 40% to as high as 750%. The vast majority of MCA funders are in New York and subject to its laws. Massachusetts, California, Texas, Florida and about 30 other states also have usury laws.
Merchant cash advance contracts are confusing, and they’re made even more confusing by some of the terms they use. For example, look for the specified percentage (the percent you will repay on each day’s card sales), purchase price (the amount you received from the funder), and the receipts purchased amount (the total amount you will pay back). Funders won’t give you the APR of the advance, so you can’t compare their products to other kinds of financing. When you sign a contract that includes a confession of judgment, you give up the right to defend yourself if the funder ever sues you. A personal guarantee makes you personally responsible. A confession of judgment may be viewed by the courts as a guarantee of absolute repayment, one more sign that the deal is really a loan.
There is also an odd twist for seasonal owners. If your advance is repaid as a percentage of receipts, the actual APR on an MCA agreement will vary depending on whether business is fast or slow. The slower the sales, the longer it takes to repay, the lower the APR. The faster the sales, the quicker you repay, the higher the APR. Paying it off early will not help; you have a fixed fee, you are not going to save on interest the way you would on an amortizing bank loan. If you want to refinance it, you are going to owe all the fees in any case, and you may even face an early repayment penalty. So you do not gain anything by paying off with your peak-season cash.
Seasonal businesses facing low revenue for several months are locked into payments they cannot keep up with. The high cost of the advance combined with frequent payments can cause serious cash-flow issues and very quickly force the owner to take on another advance to stay afloat. The result is a debt cycle that prevents them from breathing until the next high season. As tempting as it may be to take more than you need to get through slow periods, borrowing multiple times will have the opposite effect of what you wanted to achieve. It will only cost more.
You may have heard that there is no federal regulation of the merchant cash advance (MCA) industry, because an MCA transaction is a “commercial transaction” and not a “loan.” Consequently it is regulated by the Uniform Commercial Code in each state, rather than by the banking laws. That’s true. It’s also true that MCAs are subject to truth-in-advertising laws enforced by the FTC. Two recent cases show regulators are paying attention. The New York State Attorney General is suing a group of MCA funders and owners in state court, alleging that the deals should be deemed loans under the NY criminal usury law. This would make the transactions void. In a parallel action, the FTC sued in federal court for misleading and deceptive advertising, which lured financially vulnerable companies into MCA deals. Not all MCA companies are shady, by any means.
Check the Agreement
So what help exists? First, check the agreement. Does it contain a reconciliation clause? If so, request that you be allowed to make adjusted payments in your slow season. Second, have the agreement reviewed. Fixed payments, a permissive reconciliation clause, a personal guarantee, or a confession of judgment can mean the entire arrangement is actually a loan, which means the funding is subject to usury law. If usurious, the funding may be void under New York law. Third, do not take a second advance to cover the first advance. Bottom line: One must conduct a risk analysis. Costs, predatory practices, and debt cycles can do more harm than good to struggling businesses. For a seasonal business, the time to do that analysis is before the slow months, not in the middle of them.
