Cash advances for merchants: what are they?

If your firm accepts credit or debit cards but sales drop, a merchant cash advance may assist.
Most applications are approved if you have adequate sales history to repay.
MCAs may charge high borrowing costs since they're not commercial loans and aren't regulated.

Let's explore merchant cash advances.

What is a MCA?

Company funding using a merchant cash advance (MCA) is unique. Based on projected credit/debit card sales.
By pledging future income, you are effectively guaranteeing the advance.
Companies whose primary source of income is credit card sales often qualify for this kind of financing.

MCAs don't record payment history to credit bureaus since the advance isn't a business loan.
You won't develop credit with this loan.
MCA eligibility is flexible, making it possible for enterprises with low credit to qualify.

How do merchant cash advances work?

Your firm may start taking credit and debit card payments with a merchant cash advance.
Businesses utilize it to boost working capital and fill cash flow shortfalls.
Advance works like this:
  1. Cash goes to your company.
    You and the lender agree on your business's demands.
    Money drops into your company account.
  2. Finances incur fees.
    MCAs charge a factor rate multiplied by the loan amount instead of interest.
    A $100,000 advance with a 1.4 factor rate costs $140,000.
  3. Sales determine your business's repayment.
    Many MCAs pay daily, while others pay monthly.
    You repay the advance by paying the borrowed amount, factor rate, and other costs.

Merchant cash advance refinancing

Some MCAs let you refinance your cash advance to prolong payments.
Refinancing is difficult since most MCAs require you to return the original advance's borrowing cost.

If you refinance, the new loan may charge interest on the prior advance's borrowed amount plus costs.
You'll then pay interest on interest, which might trap you in debt until you return the advance.
It is not unreasonable to know how to calculate cost of debt.

Pros and Cons of MCAs:


  1. Up to 90% approval.
    For negative credit consumers, merchant cash advances are available.
    MCAs may accept 500-credit-score enterprises.
  2. Fast funding.
    Most MCAs are supplied by internet lenders that fund within 24–48 hours.
    A simplified online application may be available.
  3. Collateral-free.
    MCAs ensure payback with future income, therefore the financing firm won't demand business collateral.


  1. Weekly or daily payments.
    This harsh repayment plan will continue until the advance is paid.
  2. FRM costs are usually higher than traditional loans.
    MCA fees might result in 50–100% interest rates.
  3. Builds no credit. MCAs don't disclose payments to credit bureaus, so this financing won't help your credit.
  4. Exempt from loan usury restrictions.
    MCAs aren't commercial loans, thus state usury rules don't apply to their maximum interest rates.

Merchant cash advance alternatives

Merchant cash advances are good last-resort cash flow solutions.
If your firm qualifies for alternative business loans, it may cost less in interest and fees than an MCA.
Consider these alternatives:

Term loans
Like a merchant cash advance, a company term loan pays upfront.
You make repayments on a regular period regardless of income, not sales.

Business credit lines
Business lines of credit are one of the simplest conventional business loans to get.
Some online lenders want a 600 credit score and six months in operation.

A company line of credit limits your borrowing capacity.
Payment terms are set, but your credit limit increases as you repay the loan.

Business credit cards
Business credit cards are good if your company doesn't require much money or doesn't qualify for loans.
The card has a $50,000 credit limit and gives 1–5% rewards on purchases.
Interest rates vary from 14 to 28%.

Bottom line

Most card-selling businesses may qualify for merchant cash advances, even with weak credit, when they need cash quickly for daily expenditures.
Its hefty fees and aggressive repayments may not suit firms with cash flow issues.

Business loans for negative credit customers may have cheaper interest rates than MCAs if you don't qualify for standard bank loans.