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A Merchant Cash Advance, also called MCA, provides alternative financing for traditional small business loans. With MCA, a company pays you a cash advance that you repay using a percentage of your debit and credit card sales plus fees.

A Merchant Cash Advance is not technically a loan. Instead, an MCA provider is buying your future sales at a discount.

This type of financing is designed for small businesses that need immediate capital and can be used to cover a variety of short-term expenses, in addition to reducing cash flow.

While it is often easier to qualify for merchant cash advances, they can take the annual percentage rate to three digits and create a debt cycle that is difficult to break. In general, you should consider all other small business loan options before turning to MCA.

Here’s what you need to know about merchant cash advances, how they work, and what to keep in mind before choosing someone for your business.

How Merchant Cash Advance Works?

A merchant cash advance company approves your business for a certain amount of funding and gives you a one-time deposit in advance. You use one percent of your future sales to pay back the fees you receive.

Merchant cash advance payments can be arranged in two ways:

Percentage of debit / credit card sales

This is the traditional way an MCA is structured, in which a merchant cash advance provider automatically deducts a daily (or weekly) percentage of your debit and credit card sales until the advance is paid in full. Be done

Unlike other types of business loans, Merchant Cash Advances do not have general repayment terms, as your repayment term is based on your sales. Payment terms can be anywhere from three to 18 months. The higher your credit card sales, the faster you will be able to pay in advance.

Fixed withdrawal from bank account

Instead of deducting payments from your debit and credit card sales, merchant cash advance companies can also withdraw money directly from your business bank account. In this case, the fixed payment is made daily or weekly from your account, regardless of how much you earn in sales, and the fixed payment amount is determined based on your monthly income estimate.

This type of MCA payment structure allows you to estimate how long it will take to repay the advance based on the amount borrowed and may be better for businesses that sell debit and credit cards. Don’t rely too much on.

Merchant Cash Advance Rate and Fees

Instead of the traditional interest rate, merchant cash advance companies charge their fees as a factor rate. Factor rates are usually between 1.1 and 1.5, which varies depending on your business provider’s reviews.

Your industry, working years, business finances, debit and credit card transactions, and personal credit score can all play a role in determining the factor rate you receive. That way, how much you will pay in fees is determined by your ability to pay the merchant’s cash advance. The higher the factor rate you receive, the higher the fee you will pay.

Total advanceFactoring rateTotal repaymentTotal fees

The factor rate does not include any additional fees that the Merchant Cash Advance Company may charge you for working with it, such as an administrative fee or an underwriting fee, which will increase the total cost of your financing.

Pros and cons of merchant cash advances


  • Rise in funds. You can apply for a Merchant Cash Advance online – and get approved quickly – usually with minimal documentation required. Many MCA providers provide funding within 24 hours.
  • Flexible Requirements Merchant Cash Advance Companies can operate with bad credit business, startups as well as previous financial difficulties. In addition, MCAs generally do not require a physical guarantee to back up your financial aid. Providers may consider traditional requirements but may focus on your debit and credit card transactions or business income. Of course, the better your qualifications, the better the factor rate you can get.
  • Payment based on your sales. Unlike other types of business financing, your payment schedule is based on a fixed percentage of your sales, so payments are adjusted based on how well your business is performing.


  • Compared to other types of expensive business loans, such as online term loans or business lines of credit, whose APRs typically range from 9% to 99%, MCAs are one of the most expensive forms of financing. Depending on factors such as lender, the size of the advance, fees, payment time, and business income, APRs on merchant cash advances can reach up to 350%. In addition, unlike traditional interest rates, factor rates can make it more difficult to determine how much the MCA will cost you.
  • Risk of recurring payments and debt cycle. Merchant Cash Advances are paid daily (sometimes weekly) and deductions are deducted directly from your incoming sales, which can seriously affect your cash flow. High costs, with recurring payments, can easily get you into a debt cycle that is difficult to get out of, especially if you need another advance after borrowing and you have other financial options.
  • Ambiguous agreements. Merchant cash advance contracts can be confusing, especially considering the nature of the factor rates and payment schedules that are based on a percentage of your daily sales. MCA providers also do not usually provide APR in their contracts, which makes it difficult to compare these products with other types of financing. Although some states have forced transparency between MCA companies in recent years, suppliers have historically been criticized for deals that are unclear and difficult to understand.
  • There is no federal regulation. Unlike traditional loans, merchant cash advances, which are designed as a commercial transaction, are not subject to federal regulations. Instead, MCAs are regulated by the same commercial code in each state. Because of this limited regulation, businesses often fall prey to predatory companies that use deceptive marketing and sales tactics, offering immediate approval and funding.

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