What is a Merchant Cash Advance?





A Merchant Cash Advance (MCA) plays a role in providing quick and flexible financing and needed cash flow to small business owners. It serves as an alternative funding option where a business receives a lump sum of cash upfront in exchange for a percentage of future credit card sales or daily bank deposits.

What is a Merchant Cash Advance?

A Merchant Cash Advance is a financing arrangement where a business owner receives a lump sum of capital upfront in exchange for a portion of their future credit card sales or daily bank deposits. This is one of the top types of small business financing options that is often used by small businesses to cover immediate expenses or invest in growth opportunities while counting on future sales.

The Mechanics of a Merchant Cash Advance

Business owners apply for an MCA through a provider or business loan broker. The application process typically involves providing information about their business’s financials, credit card sales, and bank statements.



MCA providers assess the business’s financial health and credit card sales history to determine eligibility. Approval can be relatively quick, often within a few days.

Once approved, the business receives the requested capital upfront, usually within a matter of days.

Instead of fixed monthly payments, the business repays the advance by allowing the MCA provider to collect a percentage of daily credit card sales or bank deposits until the agreed-upon amount, plus fees, is repaid.

merchant cash advance


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Merchant Cash Advance Pros and Cons

Pros of Merchant Cash Advances

  • Quick Access to Funds: MCA approval and funding are often faster than traditional loans, making them suitable for urgent financial needs.
  • Flexibility: Repayments are tied to daily sales, so they fluctuate with business performance.
  • No Collateral: MCA doesn’t require collateral, reducing the risk for business owners.
  • Approval for Lower Credit Scores: Some MCA providers consider a business’s revenue rather than the owner’s credit score when approving applications.

Cons of Merchant Cash Advances

  • High Costs: Merchant Cash Advance rates can include high fees, resulting in a substantial total repayment amount.
  • Daily Repayments: The Merchant Cash Advance terms typically require daily deductions, which can be challenging for cash flow management during slow periods.
  • Limited Regulation: The MCA industry is less regulated than traditional lending, which can lead to less transparency and potentially predatory practices.
  • Not Suitable for Long-Term Debt: MCAs are best for short-term financing needs due to their high costs.

Comparing Merchant Cash Advances and Traditional Loans

Traditional loans typically involve a fixed monthly repayment schedule and may require collateral or a strong credit history. Interest rates are lower for a business loan, making them more cost-effective for long-term financing.

Merchant Cash Advances provide quick access to funds with daily repayments based on sales. They are easier to qualify for than a typical business loan, even for business owners who have bad credit but come with higher costs. MCAs are better suited for short-term, urgent needs, while traditional loans are suitable for long-term investments.

merchant cash advance

Ideal Scenarios for Using a Merchant Cash Advance

Using a Merchant Cash Advance (MCA) can be particularly suitable for business owners under certain conditions, primarily due to the nature of MCAs being relatively easy to obtain and quick to fund compared to traditional loans. However, the costs and repayment structures associated with MCAs mean they are not always the best solution for every financial need. Here are ideal scenarios for opting for an MCA:



  • Unexpected Expenses: When a business faces sudden, unforeseen costs that need to be addressed immediately to keep operations running smoothly, such as emergency repairs to critical equipment or facilities.
  • Inventory Purchases: For businesses that need to quickly restock inventory to meet a sudden increase in demand or to prepare for a peak selling season, an MCA can provide the necessary funds without the long wait times associated with traditional loans.
  • Cash Flow Shortages: During periods of low sales or slow account receivables, an MCA can provide the cash flow needed to maintain day-to-day operations, pay employees, or manage other business expenses.
  • Time-Sensitive Opportunities: If a business encounters a chance to expand, such as acquiring a competitor, securing a favorable lease on additional space, or investing in a lucrative project, an MCA can provide the rapid funding needed to capitalize on these opportunities.
  • Marketing and Advertising Campaigns: For launching a significant marketing or advertising initiative that is expected to drive substantial revenue growth, an MCA can offer the upfront capital needed to get the campaign off the ground.
  • Equipment Purchases or Upgrades: When a business needs to purchase or upgrade equipment to improve efficiency, expand product lines, or replace failing machinery, an MCA can facilitate this without the need for collateral typically required by traditional loans.
  • Bridge Financing: As a stop-gap measure to cover short-term financial needs while awaiting more substantial funding, an MCA can provide immediate liquidity.

When considering an MCA, it’s vital for business owners to weigh the following:

  • Cost of Capital: MCAs often come with higher costs compared to traditional small business funding options, so it’s important to assess whether the potential revenue from using the advance justifies the expense.
  • Impact on Daily Cash Flow: Since repayment is typically tied to daily sales, business owners should ensure that their cash flow can sustain the automatic deductions without straining their operations.
  • Short-term Nature: MCAs are best suited for short-term needs; relying on them for long-term financing can lead to financial strain due to their cost and repayment structure.

In summary, while MCAs offer a quick and relatively easy way to access capital, they are best used in specific scenarios where the benefits outweigh the costs, and the business can handle the daily repayment structure without compromising its financial health.

merchant cash advance

Understanding the Cost: Fees and Repayments

MCAs do not have traditional interest rates; instead, they charge factor rates.



Factor rates are expressed as decimals and typically range from 1.1 to 1.5. To calculate the total repayment, you multiply the factor rate by the amount borrowed. For example, if you borrow $10,000 with a factor rate of 1.3, the total repayment would be $13,000.

MCAs also use a Holdback Percentage: This is the daily or weekly percentage of credit card sales or bank deposits that the MCA provider collects to repay the advance. Holdback percentages typically range from 10% to 30% or more.

Calculating the True Cost of a Business Cash Advance

To determine the true cost of an MCA, you need to consider both the factor rate and the holdback percentage. The total repayment amount is calculated by multiplying the borrowed amount by the factor rate and then dividing it by the holdback percentage.

For example, if you borrow $10,000 with a factor rate of 1.3 and a 15% holdback, the total repayment would be approximately $86,667 (=$10,000 * 1.3 / 0.15).



merchant cash advance

Navigating Merchant Cash Advance Agreements

When reviewing a Merchant Cash Advance agreement, business owners should pay close attention to the following key elements:

  • Factor Rate: Understand the factor rate and how it impacts the total repayment amount.
  • Holdback Percentage: Determine the daily or weekly percentage of sales that will be collected as repayment.
  • Repayment Terms: Review the expected duration of the advance and the total amount to be repaid.
  • Fees: Be aware of any additional fees, such as origination fees or administrative fees.
  • Renewal or Refinancing Terms: If applicable, understand the terms for renewing or refinancing the advance.
  • Early Payoff Options: Check if there are discounts or benefits for early repayment.
  • Default Terms: Understand the consequences of defaulting on the agreement, including potential legal actions.
  • Privacy and Security: Ensure that your business’s sensitive information is handled securely and that you understand the data-sharing practices of the MCA provider.

merchant cash advance

Best Merchant Cash Advance Companies

If you’re wondering where to get a small business loan from a merchant cash advance company, here are some options to consider.



  1. PayPal Working Capital
    • Overview: PayPal offers working capital loans to businesses based on their PayPal sales history.
    • Terms: Repayment is based on a percentage of daily PayPal sales, with no periodic interest rates. The fixed fee varies and is determined upfront.
  2. Square Capital:
    • Overview: Square Capital provides advances to businesses using Square payment processing.
    • Terms: Repayment is based on a fixed percentage of daily card sales, with a fixed fee. No periodic interest rates.
  3. Kabbage (Now American Express):
    • Overview: Kabbage offers business lines of credit, including merchant cash advances.
    • Terms: Flexible repayment schedules based on daily or monthly payments, with variable fees and interest rates.
  4. OnDeck:
    • Overview: OnDeck provides short-term loans and lines of credit to small businesses.
    • Terms: Repayment terms vary, but they typically involve daily or weekly payments with fixed fees and annual interest rates.
  5. Fundera:
    • Overview: Fundera is a marketplace that connects businesses with various lenders, including those offering merchant cash advances.
    • Terms: Terms vary depending on the lender selected through the Fundera platform.
  6. National Funding:
    • Overview: National Funding specializes in providing small business loans, including MCAs.
    • Terms: Repayment terms include daily or weekly payments with fixed fees and interest rates.
  7. CAN Capital:
    • Overview: CAN Capital offers various financing options, including MCAs.
    • Terms: Repayment terms typically involve daily or weekly payments with variable fees and interest rates.
  8. Fora Financial:
    • Overview: Fora Financial provides working capital solutions, including MCAs.
    • Terms: Repayment terms vary, but they usually involve daily or weekly payments with fixed fees.
  9. Merchant Growth:
    • Overview: Merchant Growth offers financing solutions for Canadian businesses, including MCAs.
    • Terms: Repayment terms vary, with daily or weekly payments and variable fees.
  10. Fundbox
    • Overview: Fundbox provides lines of credit to small businesses, offering flexible financing options.
    • Terms: Repayment terms are based on weekly payments with fees and no periodic interest rates.
FeaturePayPal Working CapitalSquare CapitalKabbage (Now American Express)OnDeckFunderaNational FundingCAN CapitalFora FinancialMerchant GrowthFundbox
OverviewOffers working capital loans based on PayPal sales history.Provides advances based on Square payment processing.Offers lines of credit, including MCAs.Provides short-term loans and lines of credit.Marketplace connecting businesses with lenders.Specializes in small business loans, including MCAs.Offers various financing options, including MCAs.Provides working capital solutions, including MCAs.Financing solutions for Canadian businesses, including MCAs.Lines of credit with flexible financing options.
Repayment TermsBased on a percentage of daily PayPal sales, with a fixed fee. No periodic interest rates.Based on a fixed percentage of daily card sales, with a fixed fee. No periodic interest rates.Flexible schedules based on daily or monthly payments, with variable fees and interest rates.Daily or weekly payments with fixed fees and annual interest rates.Varies depending on the lender selected through Fundera.Daily or weekly payments, with fixed fees and interest rates.Daily or weekly payments with variable fees and interest rates.Varies, usually daily or weekly payments with fixed fees.Varies, with daily or weekly payments and variable fees.Weekly payments with fees, no periodic interest rates.

FAQs: Merchant Cash Advance

How quickly can a business access funds through a typical merchant cash advance?

Merchant Cash Advances are known for their quick approval and funding process. In many cases, businesses can be approved within a few days to a week.

Once approved, the funds are typically disbursed promptly, often within a couple of business days. However, the exact timeframe can vary depending on the lender, the complexity of the application, and the specific terms of the MCA.

What criteria do lenders use to approve a merchant cash advance?

Lenders consider various criteria when approving Merchant Cash Advances, including:

  • Business’s credit card sales or daily bank deposits
  • Business’s overall financial health and stability
  • Time in business (typically at least 6 months)
  • Monthly or annual revenue
  • Industry type
  • Unlike traditional loans, MCAs often prioritize revenue and sales history over personal credit scores.

Are merchant cash advances regulated like traditional bank loans?

Merchant Cash Advances are generally less regulated than traditional bank loans. They often fall under commercial finance regulations rather than consumer lending regulations. Other business loan terminology may impact specific loan options and products.



As a result, there may be fewer regulatory protections for businesses, and the terms can vary widely between MCA providers. It’s crucial for business owners to carefully review the terms and consider seeking legal advice when entering into an MCA agreement.

How do merchant cash advances impact business credit scores?

Merchant Cash Advances typically do not have a direct impact on a business’s credit scores because they are not reported to credit bureaus like traditional loans.

However, if a business defaults on an MCA agreement, the debt may be sold to collections agencies, which could then report the delinquency to credit bureaus. So, while MCAs don’t directly affect credit scores, they can indirectly impact credit if not repaid.

Can a business use a merchant cash advance for any purpose?

Businesses can generally use a Merchant Cash Advance for various purposes, such as:



  • Covering immediate expenses, including payroll and bills
  • Purchasing inventory or equipment
  • Expanding the business
  • Renovating or improving facilities
  • Marketing and advertising campaigns
  • The flexibility of using the funds for various purposes is one of the advantages of MCAs. However, business owners should use caution and consider the high costs associated with MCAs when deciding how to use the funds.

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Samantha Lile Samantha Lile is a staff writer for Small Business Trends as well as freelance writer and journalist who contributes to a variety of web publications from her home office in the heart of the Ozarks. Her work can be viewed at Samantha Lile.

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