Merchant Cash Advances: Navigating Small Business Financing

Updated on:
January 18, 2024

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In the realm of business financing, Merchant Cash Advances (MCAs) have emerged as a pivotal tool for many small business owners. This article sheds light on what MCAs are, how they work, and their place in business financing. It aims to provide entrepreneurs, particularly those managing startups or businesses with fluctuating sales, a clear understanding of MCAs as a financing option.

What is a Merchant Cash Advance?

An MCA is an advance against future revenue which can include credit card and debit card sales. This type of financing provides businesses with a lump sum of capital upfront, which is then repaid through a share of future revenue. Unlike term loans, MCAs repayment period and terms is not fixed, so if revenue goes down, so do your payments.

MCA providers evaluate credit risk and cash flow based on the business’s revenue. You’ll need to have a business bank account because this is done by reviewing business bank statements. This approach makes MCAs accessible to all types of businesses including those with lower credit scores or those seeking short-term financing options.

Key Aspects of Merchant Cash Advances

Determining the Advance Amount and Payback Terms

The advance amount is typically based on the business’s monthly sales volume. The total payback amount includes this advance plus a fee, calculated using a factor rate. This rate, unlike an annual percentage rate (APR) used in conventional loans, reflects a flat cost of capital.


Repayment involves an agreed-upon percentage of revenue which continues until the advance is fully paid. This structure aligns repayment with the business’s cash flow, offering flexibility during periods of variable sales.

Application and Approval Process

Applying for an MCA is often more straightforward than securing a small business loan. Requirements typically include the most recent bank statements as they want to understand your revenue and accounts receivable. Some may also ask to see tax returns, but compared to a bank loan where they need to see business plans, financing statements, P&L documents, and more the paperwork is minimal. The approval process can be quick, often within a business day, making it a suitable option for urgent financing needs.

Comparing MCAs with Other Financing Options

MCAs vs. Bank Loans

While bank loans might offer lower interest rates and longer repayment terms, they often require a higher credit score, collateral, and a more extended application process (it can be weeks or even months rather than hours). MCAs provide an alternative for businesses that may not qualify for bank loans or require quicker access to funds.

Line of Credit and Term Loans

A business line of credit offers flexibility and access to funds up to a certain limit, suitable for ongoing expenses. Term loans, on the other hand, provide a lump sum with a fixed repayment schedule. MCAs differ in their repayment structure and ease of access, particularly for businesses with high credit card sales but perhaps lower credit scores.

Advantages and Considerations for Small Business Owners

For startups and small businesses needing immediate working capital, the rapid approval and funding process of MCAs is a significant advantage.

Eligibility and Credit Requirements

MCAs are accessible to a broader range of businesses, including those with bad credit or lacking extensive financial histories. Even if the credit bureau reports your credit score in the sub-500 range, some MCA providers can still help. Sales volume is key eligibility criteria, rather than personal credit scores or collateral.

Understanding the Total Cost

Business owners should be aware of the total cost of an MCA. Unlike a bank loan or SBA loan, MCAs are calculated using a factor rate which is different than interest rate. A factor rate is a fixed amount so unlike compounding interest on a loan, you know exactly how much you will need to repay.

Which Merchant Cash Advance Companies are Best?

MCA Companies

There are several funders to choose from, but we recommend looking at how long a funder has been in business and customer reviews. Here are a couple that we recommend:

  1. The LCF Group – 12 years in business and 4.7 / 5 rating with 1,000+ reviews

  2. Reliant Funding – 15+ years in business and 4.6 / 5 rating with 1,400+ reviews


Merchant Cash Advances offer a unique and often vital financing solution for many small businesses. For businesses in need of quick, short-term financing, particularly those with less-than-ideal credit, MCAs can be an effective tool to meet immediate business needs and sustain growth. As with any financial decision, weighing the advantages against the total cost and impact on cash flow is essential for making an informed choice that aligns with the business’s long-term objectives.

*Repayment in this context describes the process of repurchasing a merchant cash advance. It does not describe the process of repaying a loan. MCAs are legally distinct from loan products.

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