By alphacardprocess May 6, 2025
For small business owners, the right kind of financing can help grow, expand and support day-to-day operations. Traditional loans and lines of credit are not always suitable, especially for companies with uneven cash flow. That is where a Merchant Cash Advance (MCA) can prove helpful.
A Merchant Cash Advance provides an additional lending option to a merchant that is looking for quick and easy capital. Unlike traditional loans, MCAs lend off based on future sales, and virtually always look at credit card transactions. This is an attractive alternative for businesses with irregular cash flow or businesses that have difficulty being approved for traditional bank loans.
Here, we’ll break down what a Merchant Cash Advance is all about, how it works, and how to figure out whether it’s the right funding option for your business. We will also examine the advantages and disadvantages of MCAs, compare them to traditional loans, and discuss other loan options for small businesses. At the end, you will have a decent idea of whether or not an MCA is right for your business.
What Is A Merchant Cash Advance (MCA)?
A Merchant Cash Advance (MCA) is a financing product in which a business receives a lump sum payment in return for an agreed-upon percentage of future sales (i.e. credit card transactions). Instead of providing a set loan amount, a business is given an upfront cash payment from a merchant cash advance provider, and then repays the advance through a percentage of their daily credit card sales.
MCAs are not like traditional loans that require collateral or a heavy application process. Instead, most often approval is granted based on your business’s sales history and total revenue. Thus, MCAs can be attractive to companies with unpredictable revenue streams or that are not able to obtain traditional bank loans, either due to credit or lack of collateral.
How Is It Different from Regular Loans?
Traditional loans also often come with set repayment plans and take awhile to get approval. Lenders are concerned about your creditworthiness, and they ask for detailed financial statements, business plans and perhaps even personal guarantees. In contrast, an merchant cash advance comes with a straightforward application process and centers on the daily revenue for your business.
Because repayments are linked to revenue from credit card sales, they will vary according to your volume of sales. This kind of flexibility on the part of MCAs makes it a good choice for businesses whose income fluctuates throughout the year, as is often the case with seasonal businesses or start-ups.
Typical Businesses That Use MCAs
MCAs are popular with businesses that process steady card transactions. It is mainly used by retailers, restaurants, e-commerce companies, and service providers. Even if your credit score isn’t in tip-top shape, you’re likely to qualify for an MCA if your business regularly takes credit card payments.
How Does Merchant Cash Advance Work?
With a Merchant Cash Advance (MCA), businesses receive an immediate lump sum of cash in return for a percentage of their future sales. The process is relatively straightforward, but understanding the steps involved is crucial for businesses considering this financing option.
1. Application Process
The application for an merchant cash advance is much quicker and simpler than applying for a traditional loan. Typically, you will need to provide basic business information, including:
- Sales history: The MCA provider will want to see proof of regular credit card transactions.
- Bank statements: They will request a few months of bank statements to assess your cash flow.
- Business information: Including your tax ID, legal business name, and business type.
The approval process can take anywhere from a few hours to a couple of days, depending on the provider. Since the loan is based on future sales, the approval criteria are less stringent compared to traditional loans, which is why businesses with poor credit may still be eligible.
2. Approval Criteria
MCA providers mainly look at your business’s daily or monthly credit card sales. Unlike banks that focus on credit scores, MCAs are more concerned with your revenue stream. They want to ensure that you’ll be able to repay the advance, so they typically require:
- A minimum daily or monthly credit card transaction volume (often $3,000 or more).
- Consistent sales: Your business should have stable revenue to be eligible for an merchant cash advance.
- Time in business: Most providers require a minimum of 6–12 months of operating history.
3. Fund Disbursement
Once your application is approved, the provider will provide you with a lump sum of money, anywhere from a few thousand dollars to several hundred thousand dollars, depending on your business sales volume and need. You don’t need to supply a detailed business plan or collateral like you would with a traditional loan.
4. Repayment Method
Repayment is where an MCA differs significantly from traditional loans. Instead of monthly fixed payments, repayment is tied to a percentage of your daily credit card sales—also known as a holdback percentage. Typically, this percentage ranges from 5% to 20% of your daily sales.
For instance, if you have $1,000 in daily sales volume and a 10% holdback, you’ll pay back $100 a day until the advance is satisfied. On days of slower sales, the amount of repayment would be less and, on busy days, more. This is generally more flexible than having a fixed loan repayment schedule.
Pros and Cons of a Merchant Cash Advance
Before determining whether or not you should get a merchant cash advance (MCA) for your business, it’s essential to consider the pros and cons of this type of business financing. Knowing what to expect from both sides will keep you out of risk and guide you to the right choice.
Pros of a Merchant Cash Advance
1. Quick Access to Funds
One of the biggest strengths of an merchant cash advance is how quickly you can get the money. While conventional loans can take weeks to process, the MCA is often approved in one to two days. And when approved, funds can be available in a matter of a few days (sometimes even in as little as 24-48 hours). This makes it a good choice for companies that suddenly require a cash infusion, for, say repairs that were not planned for or to buy seasonal inventory.
2. No Collateral Required
With an MCA you need to put up no collateral, such as property or equipment, as you would if you took out a loan. The repayment is based on future sales, so the lender doesn’t need physical assets to secure the loan. This makes it available to businesses without the resources to pledge valuable assets or that don’t want to put their property at risk.
3. Flexible Repayments
Unlike traditional loans, an MCA is paid back based on your business’s daily earnings. As your daily sales fluctuate, so does your repayment. On slow days, you’ll pay less, and on busy days, you’ll pay more. This makes MCAs particularly attractive for businesses with volatile income (such as seasonal companies), or those forced to operate with fluctuating sales cycles.
4. Easier Approval Process
Since MCA is not dependent on your credit score, businesses with neglected or no credit history can still be eligible for these financing options. If your business has a steady stream of credit card sales, an MCA may be available to you even if you’ve been turned down by traditional banks because of your credit score.
5. Minimal Paperwork
Applying for an MCA is very easy as compared to other loans. You shouldn’t be asked to produce voluminous financials like business plans, tax returns, etc. This ease is what makes MCAs an attractive option for businesses that want fast cash without the inconvenience of a lengthy application.
Cons of a Merchant Cash Advance
1. High-Interest Rates and Fees
One of the main drawbacks of an MCA is the cost. While the interest rate isn’t always clearly stated (it’s often embedded in the factor rate), MCAs tend to have much higher rates than traditional loans. Depending on your business’s sales volume and risk profile, the cost can add up quickly, making MCAs an expensive form of financing.
Factor rates can run from 1.2 to 1.5, so you effectively repay 20% to 50% more than you borrow. These steep costs can make it challenging for businesses to pay off the advance and could result in a debt cycle if not properly managed.
2. Unpredictable Repayments
Since repayments are connected to your daily sales, they can vary greatly, which can make it more difficult to predict your cash flow. If your company has a slow season or down time, being able to afford the payments when they are due might be challenging. This instability can add unexpected pressure to your finances, particularly if you’re struggling already.
3. Risk of Debt Cycle
If your business isn’t generating enough revenue to meet recurring daily repayments, you could enter into a cycle of debt. Because the repayment is a percentage of your daily sales, it’s possible to owe more than you can pay back in a reasonable period of time. That can lead to increased borrowing, putting individuals on a dangerous cycle of debt that can be hard to break.
4. Not Suitable for All Businesses
MCAs work well for companies that have steady income and get paid through credit card sales. But this might not work for businesses that only have intermittent or low daily sales, because those companies will not be able to meet the repayment time frame. If your business isn’t well-established in credit card processing, or if a sizable portion of your revenue comes from cash sales, merchant cash advance funding might be a poor fit.
5. Impact on Customer Relations
The daily repayment structure of an MCA can affect your business’s cash flow, potentially leading to issues with suppliers, employees, or other business partners if your payments are delayed. That could negatively impact relationships with important stakeholders, which could be bad for business down the line.
When Should You Consider a Merchant Cash Advance?
Although a Merchant Cash Advance (MCA) is able to provide capital swiftly, it is not the most suitable option for all businesses. Knowing when to even think about an MCA can help you be sure it’s the right funding choice for your situation. The following are a few situations and businesses that are looking to obtain an merchant cash advance:
1. You Need Immediate Capital
If your company has an unexpected financial demand, such as the need to replace a piece of equipment, you need to stock your shelves for a seasonal push or you need to make payroll for the employees who are going to help you through this busy season, an MCA may be the fast financial boost you need. With applications that sometimes take just a few hours, you can have your funds as soon as the next business day. This is what can make an MCA a good fit for businesses in desperate need for cash and that are unable to wait for approval of traditional loans.
2. Your Business Has High Credit Card Sales
An MCA is a good fit for businesses with high credit card sales volume. Because the advance is based on future credit cards sales, businesses that do a lot of credit card sales every business day are the best candidates. Such businesses include restaurants, retail operations and online-to-offline (O2O) companies where a large percentage of their revenue is generated from credit card transactions.
3. You Don’t Qualify for Traditional Loans
Standard business loans typically call for strong credit scores, structured business plans, and collateral. If your business has a rocky credit history or few assets to put up as collateral, but strong cash flow, seeking an MCA might be your best bet. Because an MCA is dependent upon your sales history, it is easier to qualify for, even if your credit isn’t so great.
4. Your Cash Flow Is Inconsistent
For companies that have seasonal revenue or varying cash flow, an MCA might make a solid option. With a merchant account advance, since repayments are based on a percentage of your daily sales, payback is easier to manage in slower months. If your business has fluctuating monthly income, an MCA can help you even out your cash flow without the structure of set monthly payments.
5. You Need Short-Term Financing
MCAs are generally employed for short term capital requirements. If you need a quick way to get your hands on money for a short-term need like an upcoming one-time advertising initiative or new piece of equipment, MCA financing can assist with the required cash. But if you’re looking for long-term financing or if you’re considering a significant expansion, other loan types are better suited.
Red Flags to Avoid MCA
MCAs can be beneficial in the right scenario, but they aren’t the right fit for all businesses. Here are some signs to be aware of when thinking about an merchant cash advance:
- Financial instability: If your business is already facing trouble with cash flow or debt, adding an MCA to the mix might be more trouble than it’s worth. These daily payments can create a financial squeeze that your business can’t handle.
- No predictable sales: If a business doesn’t have reliable credit card sales, it can be hard to repay what you owe. At that point, another type of funding may be more appropriate to consider.
- Other financing available: If you have other loan or line of credit options with better terms, use those instead. MCAs also tend to carry high fees and high interest rates, which might not be the best option if you can qualify for better financing.
Merchant Cash Advance vs. Traditional Loans: Key Differences
When you’re choosing between an MCA and a loan, you’re deciding which type of business financing is right for you. Both provide access to capital, but there are significant differences in how they are structured, who is eligible and how much they cost. Here, let’s understand the primary distinctions between an MCA and loan from a bank, so you can make an informed decision for your business.
1. Approval Process
- MCA: The application process to obtain a Merchant Cash Advance is usually quicker and easier. Providers care about only one thing: how much you make in daily sales. So long as your business has steady credit card sales, you may be able to receive approval in a matter of days; sometimes hours.
- Traditional Loan: Traditional loans, however, require a more onerous application process. Lenders will consider your credit score, business financials and in many cases demand collateral. The approval process may be lengthy and if your credit is not perfect then you may be denied.
2. Repayment Structure
- MCA: Payments on an MCA are directly linked to your daily sales. The lender receives a percent of your daily credit card transactions until the advance is paid off in full. It means your repayment amount varies depending on how your business is doing.
- Traditional Loan: The traditional loan has a fixed monthly repayment amount that you need to pay on a stipulated date on which irrespective of your sales volume. This can be a drag on your business — and especially when you’re working on a tighter budget during those slow months or seasons.
3. Cost of Financing
- MCA: The primary disadvantage with an MCA is the expense. MCAs generally carry a much higher interest rate, which is often hidden within the factor rate. That factor rate is typically 1.2 to 1.5 — so you’ll pay back more than you borrowed, and sometimes as much as 50% more.
- Traditional Loan: As a rule, conventional loans have a lower interest rate than an MCA. Interest rates will differ depending on the loan type, but they are typically far more predictable and a whole lot lower than the fees on an MCA.
4. Qualification Criteria
- MCA: MCA is usually easier to qualify for than a loan. So long as your business has a consistent flow of credit card sales, you’re likely to be approved. They don’t depend on credit scores, so they can be a good solution for businesses that have a hard time getting approved for traditional loans.
- Traditional Loan: Traditional loans necessitate that all businesses have an excellent credit score, collateral, and a well-established business plan. These loans can be difficult to qualify for, particularly for businesses with a short history or poor credit.
5. Use of Funds
- MCA: MCA funds are often used to support short-term needs like purchasing inventory, repairing equipment, or meeting payroll during busy seasons. It is built to enable easy access to cash when cash is what you need.
- Traditional Loan: A conventional loan is can be used for a variety of purposes and are suitable for long term projects such as; property investments, capital investments and expanding business. These are the more solid and long term sources of funding.
6. Risk and Flexibility
- MCA: While an MCA offers flexibility with its sales-based repayment structure, it comes with high risk due to its cost and the potential for creating a cycle of debt. If your business faces a prolonged downturn or slow season, repaying the MCA can become challenging, as the payment amount is based on fluctuating sales.
- Traditional Loan: Traditional loans often provide stability with fixed repayments but tend to be riskier as they typically require collateral and personal guarantee. Failure to pay can lead to fines—or the confiscation of your assets.
Alternative Financing Options to an MCA
While a Merchant Cash Advance (MCA) can be an appealing option for businesses that need quick access to capital, there are several alternative financing options that may be more suitable depending on your business’s needs and financial situation. These alternatives tend to offer lower costs, more predictable repayment terms, and more flexible eligibility requirements.
1. Business Line of Credit
A business line of credit is a flexible financing option that works similarly to a credit card. You are given access to a certain amount of credit, and you can withdraw funds as needed, only paying interest on the amount you’ve borrowed. Once the funds are paid back, you can borrow again, making it an excellent option for businesses that need ongoing access to capital for variable expenses.
- Pros: Flexible, lower interest rates than MCAs, predictable repayments.
- Cons: Can be harder to qualify for, especially for businesses with poor credit.
2. Term Loans
A term loan is a traditional type of loan in which a business borrows a lump sum of money and agrees to repay it with interest over a fixed period, typically ranging from one to five years. Unlike MCAs, term loans have a clear repayment schedule and a fixed interest rate, making them more predictable.
- Pros: Lower interest rates compared to MCAs, predictable repayment terms.
- Cons: Requires good credit, collateral, and a detailed application process.
3. Invoice Financing (Factoring)
If your business has outstanding invoices, invoice financing or factoring allows you to borrow against the value of those unpaid invoices. The lender advances you a percentage of the invoice amount, and when the customer pays the invoice, you repay the lender, plus any applicable fees. This option is ideal for businesses with slow-paying clients.
- Pros: Quick access to cash, no need for good credit.
- Cons: Can be expensive due to factoring fees, relies on customer payments.
4. Small Business Administration (SBA) Loans
The Small Business Administration (SBA) offers government-backed loans that provide small businesses with access to affordable financing. SBA loans typically offer lower interest rates and longer repayment terms than MCAs, making them an attractive option for businesses with strong credit histories. However, the application process can be lengthy and requires significant documentation.
- Pros: Low interest rates, long repayment terms, government-backed.
- Cons: Lengthy approval process, requires strong credit and collateral.
5. Equipment Financing
Equipment financing is a type of loan specifically designed for purchasing or leasing equipment. The equipment itself serves as collateral for the loan, which makes it easier for businesses to obtain financing. This option is ideal for businesses that need to purchase or upgrade equipment but don’t have the capital to do so upfront.
- Pros: Easier to qualify for, equipment serves as collateral, predictable payments.
- Cons: Limited to equipment purchases, requires the equipment to retain its value.
6. Crowdfunding
Crowdfunding involves raising capital from a large number of people, usually through online platforms. You can offer equity in your business, pre-sell products, or provide rewards to backers in exchange for their financial support. Crowdfunding is best suited for businesses with a strong following or those with unique products or services that capture public interest.
- Pros: Can raise large amounts of money, no repayment required (for donation-based crowdfunding).
- Cons: Time-consuming, not guaranteed success, fees for using crowdfunding platforms.
7. Peer-to-Peer (P2P) Lending
Peer-to-peer lending connects businesses directly with individual investors through online platforms. P2P loans often have lower interest rates than MCAs and offer more flexible terms. However, they may require good credit and can take longer to secure than an merchant cash advance.
- Pros: Lower interest rates, flexible terms, faster than traditional loans.
- Cons: Requires a strong credit profile, may be harder to qualify for than MCAs.
8. Personal Loans
If your business is struggling to qualify for business financing, you might consider taking out a personal loan. These loans are based on your personal credit and financial history, and can be used for business purposes. However, personal loans often have lower borrowing limits than business loans and may require collateral.
- Pros: Easier to qualify for, quick approval process.
- Cons: Higher interest rates could put personal assets at risk.
Conclusion
Merchant Cash Advance (MCA) loans are a fast way to access capital for a business with strong credit card sales, or ready cash flow to put toward the loan. But high price and variable repayments rule it out for some businesses. If you require long-term financing, or you have a stable cash flow, alternatives like a business line of credit or an SBA loan may be less expensive. Before opting for an MCA, you should take a careful look at your business’s financial health as well as its future requirements. With the right strategy in place, you can find optimal financing to grow and succeed your business.
Frequently Asked Questions
1. What is a Merchant Cash Advance (MCA)?
A Merchant Cash Advance is a type of financing where a business receives a lump sum payment in exchange for a percentage of future credit card or daily sales until the advance is repaid.
2. How fast can I get funding from an MCA?
Many MCA providers offer funding within 24–48 hours after approval, making it one of the fastest financing options available.
3. Will applying for an MCA affect my credit score?
Most MCA providers perform a soft credit check, which doesn’t affect your score. However, defaults can impact your business credit.
4. Can startups qualify for a Merchant Cash Advance?
Startups with steady credit card sales may qualify, but most providers prefer businesses with at least 3–6 months of revenue history.
5. Is an MCA a loan?
No, an merchant cash advance is technically not a loan. It’s an advance based on future sales, so it isn’t subject to the same regulations as traditional loans.