Merchant Cash Advances

Is your small business having cash flow challenges? Have you seen the tempting ads for merchant cash advances? If your answer to both questions is “yes,” be sure to consider your other options.

For a business that needs money fast – and doesn’t want to put up collateral like your home or business property — a merchant cash advance (MCA) can be an attractive financing option. Until you calculate the true cost, that is.

When you compare the price of an MCA to the alternatives, like business debt consolidation, you’ll find that there are a handful of more affordable and less risky ways to get cash.

What Is a Merchant Cash Advance (MCA)?

Merchant cash advances (MCAs) give your business up-front cash if you agree to pay back a larger amount. Specifically, MCAs are paid back by “selling” or promising a portion of your future revenue, usually 10% or 20% of your daily receipts, plus a variety of fees. That’s why, unlike loans, MCAs are also known as “sales of future receivables.”

How Merchant Cash Advances Work?

Merchant cash advance companies provide a lump sum of money in exchange for a percentage of your future revenue. Then, they usually collect payments by debiting a portion of your businesses credit card revenue, or by making automated clearing house (ACH) withdrawals from your merchant account or bank account.

The amount you pay back is tied to your “factor rate” on the advance, plus fees (which are often exorbitant). Factor rates range up to 1.5, and if your rate is 1.5, you’ll pay $1.50 for every dollar you’re advanced. On top of that, your effective APR could be as high as 350%.

Here’s a closer look at the two most common arrangements for paying an MCA.

Percentage of Debit/Credit Card Sales

The traditional option for repaying an MCA involves a daily deduction from your business’s debit and/or credit card transactions, although some MCAs are paid weekly. Payments start the day after you receive your funds.

Fixed Withdrawals From a Bank Account

With the fixed withdrawal method, a fixed amount is withdrawn from your business bank account on a daily or weekly basis, and your business can opt to “reconcile” the payments or adjust them based on actual revenue received.

Pros and Cons of Merchant Cash Advances

Merchant cash advances offer many conveniences that don’t come with other business finance options. But that convenience comes with a high price. Make sure you consider all of these pros and cons before applying:

Pros of MCAs

  • Fast funding, usually within a day or two.
  • Poor credit may not prevent you from qualifying.
  • Unlike some other financing, you don’t need 2-3 years of business history to qualify.
  • No collateral is required.
  • No interest is charged.
  • Payments can decrease as your sales decrease.

Cons of MCAs

  • The industry has a history of deceptive practices and predatory terms.
  • High fees, including origination fees, administrative fees, factor rates, underwriting and funding fees.
  • Typically more expensive than small business loans.
  • Payments can increase as revenue grows.
  • Effective APR can reach up to 350% or higher.
  • Only available for businesses that accept debit or credit card payments.
  • Borrowers are susceptible to debt cycles/debt traps.
  • Prepayment penalties.
  • Not regulated at the federal level.
  • Confusing contracts.

Merchant Cash Advance Repayment Structure

MCA repayment structures are complex, so they can be confusing for borrowers. Here are a few terms to know that can help you navigate MCA repayment.

Factor rate

To calculate your factor rate, multiply the factor rate on your MCA by your cash advance amount. For instance, a merchant cash advance of $60,000 with a factor rate of 1.5 would cost you $90,000 total. That’s a $30,000 fee—equal to half the amount of the initial advance!

Holdback rate

The holdback rate determines how much of your revenue goes toward repayment each day or week. This rate often ranges from 10% to 20%.

So if your business generates $2,500 in revenue per day (or $75,000 per 30-day month) with a 10% holdback rate, you’ll pay around $250 per day or $7,500 per month. According to these terms, it would take around 12 months to repay just the principal balance on a $90,000 MCA.

Merchant Cash Advance Relief

Merchant cash advances can help you resolve cash flow issues, but they can also cause bigger problems. Repaying an MCA can leave you short on cash for payroll, supplies, or other business expenses.

If you’re trapped paying an expensive MCA, relief is available. You might want to use a business or personal loan to consolidate your MCA debt. Even if the APR on your debt consolidation loan is relatively high, it could still beat the triple-digit rates associated with some MCAs.

Alternatively, a secured loan (which requires collateral) could get you into better rates. Depending on your business, you may be able to use machinery or real estate as your collateral.

MCA Alternatives

If you’re considering an MCA, be sure to explore all of your other options first. if you apply for other types of financing with a co-signer and/or collateral, you’re more likely to find financing with affordable terms. The following alternatives could get you that cash you need with much lower risk than a merchant cash advance:

  • Business loan from your bank or credit union
  • Small business credit card with rewards/incentives, like 0% introductory APR
  • SBA loans or other federal loans for small businesses
  • Small business grants
  • Business line of credit
  • Invoice factoring
  • Crowdfunding
  • Equipment leasing

More Helpful Resources for Funding Your Business

When you take out a merchant cash advance, you risk having unaffordable payments and eventually even needing debt relief for your business.

But you don’t have to put everything on the line just for access to quick cash. If you want to successfully manage your small business, give yourself time to research affordable, low-risk financing options so you can find a solution that works for the long run.

» Learn More: Best Ways to Borrow Money


Dara Duguay

Dara Duguay is the CEO of Credit Builders Alliance. Prior to joining CBA, Duguay was the Director of Citigroup’s Office of Financial Education and founding executive director of the Jump$tart Coalition for Personal Financial Literacy.

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    1. N.A. (2022, January 5) Merchant Cash Advance Providers Banned from Industry, Ordered to Redress Small Businesses. Retrieved from
    2. N.A. (ND) Advisory to Small Businesses with Merchant Cash Advance Contracts. Retrieved from
    3. N.A. (August 3, 2020) FTC Alleges Merchant Cash Advance Provider Overcharged Small Businesses Millions. Retrieved from
    4. Alicia Tuovila (2023, August 27) Is a Merchant Cash Advance (MCA) Right for Your Business? Retrieved from
    5. N.A. (2023, September 6) How are merchant cash advances different from a business loan? Retrieved from
    6. Zachary Mider (2020, December 8) N.J. Says Cash-Advance Pioneeer Deceived Borrowers. Retrieved from