Merchant Cash Advance

What is a merchant cash advance?

A merchant cash advance (MCA) is a way for businesses to get cash fast without going through a traditional bank loan’s long, drawn-out process. Instead of making fixed monthly payments, you repay the advance through a percentage of your future sales. This is perfect for companies with fluctuating revenue, like restaurants or retail stores. If business is booming, you pay it back faster. If sales slow down, your payments adjust accordingly.

Key Points

Merchant cash advances offer fast, flexible funding based on your business’s future credit card sales. This is ideal for companies with fluctuating revenue that need cash quickly.
Merchant cash advances come with high costs and risks, including expensive repayment terms and potential cash flow strain, so be sure to weigh the pros and cons before committing.

How does a merchant cash advance work?

Unlike a regular loan, a merchant cash advance is based on your business’s daily credit card sales. Here is the what the process of getting a merchant cash advance looks like:

You apply for an MCA and submit your revenue info.
The lender reviews your sales history and offers a lump sum—usually 50% to 250% of your monthly sales.
Repayment happens automatically—a percentage of your daily credit card transactions goes straight to the lender.

Imagine you own a busy coffee shop and need $50,000 to upgrade your equipment. You try to get a traditional loan but are rejected because you have not been in business for very long or have a low credit score. This leads you to turn to a merchant cash advance. You find a lender that offers you $50,000 with a 1.3 factor rate, meaning you’ll repay $65,000. Instead of a fixed monthly bill, the lender takes 10% of your daily sales. If you have a great day, you pay more; if it’s slow, you pay less. It’s flexible, but that convenience comes at a cost.

Merchant cash advance advice: what to watch out for

MCAs can be a lifesaver when you need cash fast, but they aren’t always the best long-term solution. Here’s what to consider:

They’re expensive. Unlike traditional loans with interest rates, MCAs use factor rates (usually 1.1 to 1.5), meaning you could end up repaying far more than you borrowed.
They can drain cash flow. Since payments come from your sales, managing expenses can be tough—especially if business slows down.
They’re not heavily regulated. MCA providers don’t have the same rules as banks so that terms can vary wildly.

If you’re considering an MCA, shop around, negotiate the best terms you can, and make sure it won’t crush your cash flow. Sometimes, a traditional business loan or line of credit might be a better fit. But if you need cash fast and have steady credit card sales, an MCA can be a helpful (if expensive) solution.