Merchant cash advances for NEMT companies: the true cost, the daily debits, and the contract terms

A merchant cash advance trades cash now for a larger amount of your future deposits. The price is set as a factor rate, such as 1.35, and repaid by debits pulled from your bank account every business day or every week. For a company paid by brokers and Medicaid, three things make an advance riskier than it looks. The yearly cost is far higher than the factor rate suggests. Daily debits run on a different rhythm from batch deposits. And a contract that buys “all receipts” can collide with the federal rule on Medicaid payments.

How a merchant cash advance is built

The funder does not call it a loan. It pays you a purchase price, and in return you sell it a larger amount of your future receipts. You authorize it to pull a set debit from your operating account until that amount is collected. A contract may state a specified percentage of receipts and treat the daily debit as an estimate of that share, with a reconciliation clause that lets you ask for an adjustment when receipts drop.

State laws now define the product by that structure. Virginia’s code treats sales-based financing as repaid over time as a percentage of sales or revenue, with payments that can rise or fall with volume. It also covers a true-up, where fixed payments are later reconciled to a percentage. Texas uses the same concept in its 2025 law.

How the advance works in practice matters more than the label. New York’s attorney general sued Yellowstone Capital, whose contracts called each deal a purchase of a portion of future revenue. The attorney general’s office said the companies pulled fixed amounts from merchants’ bank accounts every day over repayment periods that often lasted 60 or 90 days, making the deals short-term loans at rates up to 820 percent a year. The January 22, 2025 settlement included a $1.065 billion judgment and canceled $534,552,724 owed by merchants.

Turning a factor rate into a yearly cost

A factor rate is a flat charge on the advance, so the shorter the repayment, the higher the yearly cost. Here is a hypothetical offer:

1. The funder advances $40,000 at a factor rate of 1.35, so you owe $54,000.
2. It keeps a $1,000 origination fee, and $39,000 lands in your account.
3. The finance charge is $54,000 minus $39,000, or $15,000. That is 38.5 percent of the money that reached your account, before counting time.
4. To line it up against a loan, spread that charge over the repayment schedule and state it as a yearly rate.

The same $15,000 charge, repaid at three speeds by business-day debits:

California and New York make funders show a figure like this. California’s regulations, in effect since December 9, 2022, require an estimated APR on sales-based financing disclosures, calculated from your historical sales or from the funder’s underwriting projection. New York’s rule, adopted February 1, 2023, requires the same line, worded as the “Estimated Annual Percentage Rate (APR).” If your state does not require it, ask for the number in writing anyway.

Why daily debits and NEMT deposits collide

NEMT revenue does not arrive every day. MTM’s standard agreement, as Pennsylvania publishes it (dated January 1, 2023), settles a clean invoice within 30 days of the day it is entered online, which turns a week of rides into one deposit weeks later. When NEMT brokers pay lists the schedules by broker. A daily debit does not care when that deposit arrives.

Take the 120-day example. At $450 a business day, $2,250 leaves every week. If broker deposits land 14 days apart, ten debits, $4,500, come out between deposits, on top of payroll and fuel. If a deposit is late, debits bounce, so read what your contract says happens after a returned debit or a blocked account. A reconciliation clause helps only if you use it: read how to request an adjustment, what records the funder wants, and how quickly it must respond.

The Medicaid rule and your broker contract

Federal rules control who Medicaid may pay. 42 CFR 447.10 lets Medicaid pay the provider and only a few listed others, and paragraph (h) bars factors from receiving any Medicaid payment. Under the rule, a factor is anyone who takes a provider’s receivables by assignment or sale and advances money against them, keeping a fee or part of what is collected.

A merchant cash advance does not get the state to pay the funder. It pulls money from your account after the deposit lands. But a contract that says the funder purchased all of your future receipts includes, on paper, the Medicaid payments the rule keeps away from factors. Medicare’s claims manual is blunt about its own program: whoever finances a provider cannot purchase its Medicare receivables. Before you sign, ask for a carve-out that excludes Medicaid and Medicare receipts. Then get your state Medicaid agency’s view and a health care attorney’s reading.

Your broker contract adds conditions of its own. If you assign MTM payments to anyone, MTM’s agreement requires written notice of the assignment, with the paperwork showing it, a full 30 calendar days ahead. It also allows MTM to take back overpayments out of later payments, which can shrink the deposit the funder’s debit is counting on. NEMT factoring walks through broker assignment clauses in more detail.

State laws that now cover cash advances

At least five states regulate merchant cash advances directly. None of the five sets a price cap, and Texas law bars its finance commission from setting a maximum rate or fee. They require disclosure, registration, or both:

Texas goes furthest. On top of the disclosure rule, its chapter 398 makes a confession of judgment term void and bars automatic debits from your account unless the funder holds a perfected first-priority lien on it. Funders and brokers already in business have until December 31, 2026 to register, and each violation carries a civil penalty of $10,000.

New York tightened its own rule in 2019. Since August 30 of that year, a confession of judgment there may be filed only in the county where the borrower lived when signing or lives when it is filed, and a business lives where it has a place of business. A New York clerk cannot enter one against a NEMT company with no place of business anywhere in New York. The FTC has acted too. In its case against RCG Advances, the agency charged that the company required confessions of judgment and used them to seize business and personal assets. The court permanently banned the operator, Jonathan Braun, from the industry in October 2023 and entered a $20.3 million judgment against him in February 2024.

What an advance does to your next loan

An active advance can block the cheaper money you need to get out of it. SBA’s SOP 50 10 8.1 allows a 7(a) loan to refinance a sales-based repayment agreement only after the advance becomes a term loan, amortizes for at least 24 months, and goes without any new advance. A lender reviewing a 7(a) Small loan also reads your last two months of bank statements to find every debt, and daily debits stand out. The rest of the review is in SBA loans for a NEMT business.

Advances are easier to get than bank credit. In the Federal Reserve’s 2025 Small Business Credit Survey, 48 percent of merchant cash advance applicants were fully approved and 12 percent denied, against 45 and 24 percent for business lines of credit. Among borrowers from online lenders, 60 percent said the actual cost was higher than they expected.

Cheaper ways to cover a payroll gap

When the shortfall is a timing problem, cheaper fixes exist:

• Open a line of credit early. While prime sits at 7.00 percent, SBA caps Express line rates at 13.5 percent or less as of October 2026. See a line of credit for a NEMT company.
• Factor only what you may sell. Facility invoices and rider-paid balances are usually fair game for factoring. Claims the state pays are not.
• Bill every day. If a payer’s clock starts at submission, a trip that sits unbilled adds a day to the gap for every day it waits. Managing NEMT cash flow puts numbers on it.
• Collect private pay at booking. A saved card removes the chase on rider-paid trips.
• If you already have an advance, request reconciliation in writing, and do not stack a second advance on the first.

Seeing the gap before an advance looks tempting

A late deposit is easier to plan around when you see it coming. HealthRide records every payment in one ledger, whether it is a card, a facility check, cash, or an insurance payment, matched to trips and invoices. The collections queue shows what is ready to collect, ready to invoice, and past due, so a slow payer shows up weeks before payroll does. See payments.