Merchant Cash Advance (MCA)

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What is a Merchant Cash Advance?

A merchant cash advance, or MCA, is a specialized type of business financing that was initially used by small business owners to raise capital against future credit card sales. Today, an MCA is commonly used as an advance against general accounts receivable and future sales. 

A merchant cash advance is not a loan. Instead, as its name implies, an MCA is a cash advance against future sales. This type of funding is more commonly referred to as “revenue-based funding” as it is tied to the sales revenue of the merchant. MCAs are also referred to as an alternative form of business funding that is granted from a specialized MCA provider.  

Merchant cash advances tend to be short-term financing arrangements. They typically have higher cost, but may have easier eligibility requirements than most forms of business funding. 

Since repayment and eligibility are based on a business’s sales history (and future sales expectations), an MCA may not be the type of financing that is suitable for startups.

Is an MCA the Right Choice for Your Working Capital Needs?

MCAs are generally known as one of the higher-cost financing options for small business owners. Many experts advise using a merchant cash advance as an alternative option when traditional loans or lines of credit are not offered. Merchant cash advance companies are not regulated like traditional lenders, so it’s very important to understand the costs and terms of your MCA agreement. 

While known as an expensive source of working capital, an MCA can mean the difference between getting through hard financial times or going out of business. They’re also associated with lower eligibility requirements, a simple application process, and quick funding. 

It’s always advisable to consult with your MCA provider very carefully and ask them to explain the details of your agreement. You may wish to get legal advice or consult your own financial advisor to determine if this financing option is right for your business. 

MCA Advantages and Disadvantages


  • Lower eligibility requirements 
  • Flexibility: If your sales go down, so do your remittances 
  • No additional fees if repurchase takes longer than initially anticipated
  • Less paperwork than a traditional bank loan 
  • Applicants are eligible with bad credit 
  • Quick funding decision and turnaround time 


  • Can be more costly than a conventional loan 
  • Can reduce future cash flow 

How Do Merchant Cash Advances Work?

An MCA is an arrangement where an MCA provider (financing company) will provide a lump sum cash advance to a business owner in exchange for a fixed payback amount over a pre-determined length of time. The amounts to be paid back to the financing company are taken directly as a percentage of the business’s sales, including future credit card sales or debit card sales. 

In most cases, the business owner will authorize the MCA provider to draw repayment amounts (known as holdback amounts) directly from the business owner’s credit card merchant account or business bank account. 

Typical Costs and Repayment Terms for an MCA

Merchant cash advances differ from traditional bank loans in several significant ways. For example, instead of using an annual percentage rate, MCA providers express the cost of financing as a factor rate. 

Factor rates will be expressed as a number and a decimal (e.g. 1.35), indicating the payback amount. 


  • Let’s say you are a business owner who makes $50,000 per month in sales each month. 
  • You are seeking a merchant cash advance for $20,000. 
  • Your MCA provider gives you a factor rate of 1.35 over an estimated 6 months. 

In the example above a business owner receives a quote to receive a $20,000 advance with a factor rate of 1.35 and an estimated repayment term of 6 months. To understand the cost of the cash advance you multiply the amount of the advance ($20,000) x the Factor Rate (1.35) and you have the repayment amount. So for the case above, the repayment calculation is as follows: 

$20,000 x 1.35= $27,000. The cost of the funds is $7,000 (plus any other fees). This is a fixed amount that needs to be paid back. 

Keep in mind that MCA providers will make their financing offers based on a business’s sales history and bank account information. The MCA provider will also specify the percentage of future sales that will be drawn each time (holdback amount) to repay the financing amount. The specific percentage of future sales is determined by analyzing your business’s recent sales and revenue. 

Since the term of the repayment in the example above was set at 6 months, the MCA provider will draw approximately $4,500 per month from the proceeds of general sales (including business credit card sales), taken directly from the merchant account of the business. Based on the company’s average monthly sales of $50,000 the MCA provider will take roughly 9% of all sales proceeds to repay the financing. 

$50,000 x 9% = $4,500 

Depending on the MCA agreement, the frequency of merchant account debits by the MCA provider can vary. In many cases, debits for MCA repayment are based on a percentage of daily or weekly sales and drawn from your merchant account or business bank account at the end of each repayment period

Merchant Cash Advance Repayment FAQs

A merchant cash advance, or MCA, is a great option for businesses that need flexibility.   MCAs are structured so that the funder is essentially a short-term business partner.  They get an agreed-upon percent of your sales revenue until the advance is repurchased.  So, if your business does great, your funder gets repaid faster.  However, if sales slow and your revenue goes down, so do your remittances. Moreover, unlike a loan that charges interest, there are no additional fees if the repurchase takes longer than initially anticipated.

Remittances are tied to a business’ revenues. If your sales decline, you would be eligible for a reconciliation, one of the hallmark differences between MCAs and loans. Your remittances are a percentage of your revenues, any decline may mean that your repurchase takes longer than initially anticipated. Since your MCA provider is, in essence, your short-term business partner, they bear the risk of declining sales along with you.

Since MCAs are repaid with future sales revenue, they will reduce future cash flow. Remember, an MCA is an agreement to receive a lump sum cash payment for the promise to pay back a fixed percentage from your sales transactions in the future. 

Almost every company requires additional capital at some point to survive and thrive. Cash shortages can arise due to many common business activities and it’s a normal condition of running most businesses. 

Cash shortages can be due to reduced cash flow from seasonal swings in sales, expansion, investments in machinery or to take advantage of favorable purchasing opportunities. Whatever the reason, the decision to seek additional funding should be balanced with your expectation for future growth and your company’s ability to repay the borrowed amounts. 

What is the Application Process for a Merchant Cash Advance? Can I Qualify with Bad Credit?

An MCA is primarily based on your general sales history, including business credit card transactions. The funder is basing a large part of its funding decision on your credit card sales volume to determine how much and when you can pay them back. In many ways, eligibility requirements for an MCA are less strict than many other funding options. 

In particular, you may never be required to submit a personal credit score or submit your credit history. Your credit card payments from customers are the primary factor considered by merchant cash advance providers in determining the amount of cash to advance. That’s why it’s common for business owners with bad credit to qualify for an MCA and why it’s a popular financing option. 

In many cases, you will need to provide 3-4 months of bank statements from your business bank account.

Merchant Cash Advance Case Study

Understanding the benefits of an MCA are a matter of simple math in many cases. In fact, assuming debt of any sort can be justified by examining the simple profitability and working capital needs of your business.  

Consider the case of the Denver-based distillery that used an MCA to fuel growth during the recent shutdowns and supply chain crisis following the Covid-19 pandemic. 

2018 – After making a substantial investment in infrastructure, the distillery began operations and started selling its products in the Colorado market. 

2019 – The distillery expands sales and operations activity and becomes marginally profitable. 

2020 – The company continues to grow and makes upgrades to facilities to meet increasing demand. At this point, the owners exhausted their credit lines just as the Pandemic began to shutter many businesses. Fortunately, the liquor industry was deemed an essential service and it continued to operate. However, the company was cut off from bars and restaurants – its main sales channels.  

As the Pandemic dragged on, sales of alcohol shifted from people shopping in-person at retail liquor stores to approximately 60% of consumers placing their orders electronically online for pick-up or delivery.  

For a new brand, this paradigm shift severely restricted the distillery from growing its brand, since many new spirits companies benefit from consumers being able to sample the product in retail stores as they shop. 

By the latter half of 2020, the distillery realized that it had to find a way to market its new products and follow its potential customers online. They quickly devised an online marketing strategy to promote their products but were faced with the challenge of financing the project. Having exhausted their conventional credit lines and experiencing static cash flow, they considered a merchant cash advance. 

Initially, the owners of the distillery were concerned that a merchant cash advance carried a higher cost of capital than their conventional loans. However, being a new business and carrying a significant amount of debt already, the owners of the distillery understood that they were a high credit risk and would have to pay a little more for borrowing. 

MCA Return on Investment (ROI) Made the Decision Clear

Faced with few alternatives, the owners of the distillery did the math on the cost of their MCA funding versus the increased sales they anticipated by investing in a marketing campaign. 

“Initially, we were concerned about the cost of capital using a merchant cash advance,” said Kim Veiga, the President and co-owner of the distillery. “But we stepped back and looked at it from the perspective of ROI and took the emotion out of it. It made perfect sense to us from that perspective because we were still making great margins.” 

“As a short-term loan alternative it made all the difference in the world and we were able to increase sales as a result. It was no different than an increase in pricing on any other resource we use regularly,” she said. “For some reason, borrowing gets people emotional. We didn’t get that emotional when the price of glass increased, so we took the emotion out of it.” 

2021 – After repaying their initial MCA, the distillery was back on track and sales were continuing to grow. However, the effects of the pandemic had begun to manifest in a global supply-chain crisis. 

“Early in 2021, we began to see a slowdown in glass supply for our bottles,” says Veiga. 

At this point, the government was the main source of small business financing. But pandemic funds were limited, especially for companies with few employees. The distillery knew it needed to act fast to raise additional capital or risk going out of business. 

“Once again we were in a position where we needed capital fast. This time we knew we had to buy as much glass as we could because we were convinced that there would be severe shortages,” explained Veiga. “This was not even an issue of profitability, it was a matter of survival.” 

As it turned out, Veiga was right. The global supply of glass bottles ground to a halt in late 2021 driving many distilleries out of business. 

“The decision to take a second business cash advance to buy additional glass was an insurance policy for us,” explained Veiga. “We had to act fast and we had to buy immediately. Once again, we paid a little extra for the capital, but it was well worth it because almost all glass deliveries ceased from October 2021 through March 2022. If it were not for the MCA we would likely have been one of the supply-chain casualties,” says Veiga.

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