What Is a Merchant Cash Advance?

Getting Money for Your Business - Debt or Equity

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If you’ve been looking for a way to get fast money to fund your business, you may have considered a merchant cash advance as an easy choice. Also called a “business cash advance,” this product is similar to a paycheck advance for consumers.

How does it work? What does it cost? Here are the basics of this popular type of small business financing.

Merchant Cash Advance Explained

A merchant cash advance (or “MCA”) offers an advance against future sales. This type of financing is generally available to businesses that have a steady volume of credit card sales, including retail stores, restaurants, and medical offices.

Documentation needed during the application may include:

  • proof of your identity (such as a state-issued ID)
  • bank and credit card processing statements
  • business tax returns
  • bank statements

Knowing your credit scores is smart, as well; the lender may run a soft credit check on the owner’s personal credit.

The amount you can get via an MCA ranges from a couple of thousand dollars to over $200,000. Keep in mind, however, that the payback time is usually very short—18 months or less, in most cases. To pay the money back, the lender will typically take a percentage of sales, usually on a daily basis. Repayments will come out of your connected merchant account and are calculated based on sales processed through credit or debit card cash register sales. Cash or check sales don’t count toward the daily quota.

Pros and Cons of the MCA

Below are a list of a few pros and cons surrounding MCAs.

What We Like

  • Fast money

  • Easy to qualify

  • No collateral

  • Flexible credit score requirements

  • Flexible payments

  • Can be used for whatever you want

What We Don't Like

  • Factor rates, not interest rates

  • Potential cashflow problems

  • Might need to change merchant processors


The perks of this type of funding is that you can usually get your money fast– in as little as a day or two—and it can be easy to qualify. You don’t need collateral and credit score requirements are usually extremely flexible as the financing company is more interested in your sales history than your credit history. If you can demonstrate that you have a certain volume in credit or debit card sales over the past year, you likely have what you need to qualify for an MCA.

Flexible payments can be another advantage. If your repayment plan is based on a percentage of daily sales, you don’t have to pay back as much money when sales are low. This can be especially helpful to businesses with fluctuating sales, such as business with seasonal sales.

Finally, the funds obtained from an MCA can be used for any business expense you choose.


The cost to get a merchant cash advance is much higher than many other types of funding. Costs are almost always described as factor rates, not interest rates. A factor rate differs from interest in that it’s not based on a specific time period. Paying off the advance more quickly won’t save you money, for example, in the same way that paying off a credit card faster will save you money on interest.

The biggest risk of an MCA is that a chunk of your future sales will go toward repaying the advance and associated costs. This can result in cashflow problems that can place your business deeper in debt, and force it to borrow again.

The advance will be linked to your merchant processing account so that payments come off the top of sales. You may be required to change merchant processors in order to qualify, and it may be difficult to leave your merchant processor until the money is paid back. If you find yourself unhappy with your current card fees and services, you may have to wait until the money is paid in full before you switch.

What Will It Really Cost?

Figuring out the price for an MCA can be tricky since it’s not based on an interest rate or annual percentage rate (APR). When calculated as an APR, the cost can be significant—and much more costly than other types of business loans.

Here's an example:

  • If you get $25,000 at a factor rate of 1.25, you’ll be obligated to repay a total of $31,250, which includes $6,250 in factor fees (25% of the amount borrowed.) If it takes you a few years to pay back the amount borrowed, the equivalent interest rate may be similar to a high-rate credit card. But since these often carry short-term repayment periods, the equivalent APR will likely be higher. Borrowers may pay the equivalent of 30% to 100% APR or more.

Is an MCA a good idea?

Considering the low barrier for approval, an MCA can be an option for businesses that need cash quickly. But an MCA will never be as cheap as a bank loan, and those with good credit, strong revenues, and at least two years in business would be wise to apply for other financing options such as a bank loan or line of credit.

Article Sources

  1. Headway Capital. "Merchant Cash Advance," Accessed Oct. 4, 2019. 

  2. Credibly. "Merchant Cash Advances," Accessed Oct. 4, 2019. 

  3. Best Bridge Capital. "Merchant Cash Advance Rates," Accessed Oct. 4, 2019.