Merchant Cash Advance: The Complete Guide

Camino Financial07 Nov 2023
Merchant Cash Advance: The Complete Guide
A merchant cash advance (MCA) is a popular form of financing, especially useful for businesses with limited access to traditional bank loans. This blog post explains what they are, their benefits and drawbacks, who should apply for one, and the various ways you can use the funds. Additionally, we'll walk you through the application process and highlight some of the top providers in the industry.
Table of Contents
1. What is a merchant cash advance?
2. Pros and cons of merchant cash advances
3. The cost of a merchant cash advance
4. MCA average rates, fees, and terms
5. Most common MCA requirements
6. How to apply for a merchant cash advance
7. Best merchant cash advance lenders
8. Best ways to invest MCA funds
9. Alternatives to merchant cash advances
10. FAQs

What Is A Merchant Cash Advance?

A merchant cash advance (MCA) is a form of alternative financing that provides businesses with a lump sum of capital in exchange for a portion of their future daily debit and credit card sales. This makes it an ideal solution for businesses that may have difficulty accessing capital from a bank. Instead of extensive financial business data, MCA lenders approve people depending on their estimated daily debit and credit card sales. The repayment is typically made over an agreed-upon period, usually between 3 and 18 months. During this period, the merchant will pay back the advance through a holdback of their daily credit and debit card sales. The great thing about this type of financing is that they are easy to qualify for, and the funds are typically made available quickly.
That said, they are an extremely expensive way to finance a business.
Discover Other Ways To Finance Your Business

How Does A Merchant Cash Advance Work?

When you get a Merchant Cash Advance, your business will receive a deposit from the finance company, usually very quickly, in exchange for future credit card sales. Most institutions that offer MCAs will ask you for daily payments (although some offer weekly or monthly payments). You can pay directly, or the lender will retain a percentage of each sale. The problem with this credit option is that you do not sell the same amount of money every day; you could be facing a low season or a high season. This means that depending on your sales, paying off your cash advance could take more or less time. MCAs do not charge interest; they use factoring rates ranging from 1.1 to 1.4. Consider them as percentages: a factor rate of 1.1 equals 10%, a factor rate of 1.2 equals 20%, and so on. MCA lenders don't ask for collateral, so your personal and business assets stay safe. Although, in a way, your future credit card sales are the collateral.

Merchant Cash Advance Example

If a business requires $10,000 and has an average daily debit and credit card sales of $1,000, the lender may agree to advance the $10,000. The business will then pay back the total plus a fee based on the percentage of their daily debit and credit card sales. So, the MCA lender and the business owner will agree on a percentage, let's say 10%, of daily credit card sales. So the first day, the business makes $1,415 in credit card sales. This means they have to pay $141.50 that day. The borrower must continue making repayments until you have paid off the $10,000 plus the fee.

Who Should Apply For An MCA?

It is a viable option for businesses that may not qualify for traditional loans due to poor credit, lack of collateral, or limited operating history. Typically, businesses in industries such as retail, hospitality, and restaurants are more likely to apply for merchant cash advances because they have a high volume of daily credit and debit card sales. But any business with a consistent revenue flow can apply for a merchant cash advance. That said, we recommend you think of them as a last resort option because of their high costs.

Pros And Cons Of Merchant Cash Advances


  • Access funds quickly. It is a great way to quickly access funds for your business without a traditional loan's lengthy process and strict criteria.
  • Repay funds over time. They are repaid through a percentage of future credit card sales, meaning you don't have to worry about a large fixed monthly payment.
  • No collateral required. Many of them don't require any collateral, making them a viable option for those without the ability to provide security for a loan.
  • A credit score is not considered. They don't require a credit check, which makes them a great option for those with bad credit.


  • High Costs. They often come with really high fees and high-interest rates, which can be challenging to pay back.
  • Repayment Inflexibility. Lenders may require businesses to make daily payments of a fixed percentage, which can be difficult to manage on days with lower revenue, making the repayment terms inflexible.
  • Unpredictable Cash Flow. Merchant cash advances depend on future sales, so you may be unable to predict how much money you'll have to repay at any given time.
  • Limited Availability. They are only available to businesses with a specific annual revenue, so if you don't meet those requirements, you may not qualify.
  • Personal Liability. If you take out a merchant cash advance with a personal guarantee, the lender will hold you personally liable if you default on the loan.
  • Short Repayment Periods. They have short repayment periods, which can put extra pressure on companies already hurting for positive cash flow.

The Cost Of A Merchant Cash Advance

Amount Borrowed

This is the total amount of funds the business receives from the lender.

Factor Rate

To determine the total cost, lenders multiply the amount borrowed by a decimal number known as the factor rate. For example, if the factor rate is 1.3 and the amount borrowed is $50,000, the total cost of the merchant cash advance would be $65,000 (1.3 x $50,000).

Holdback Amount

The holdback amount is the percentage of daily sales the lender will deduct from the business's bank account to repay. This percentage is typically between 5% and 20%. For example, if the holdback amount is 10% and the business's daily sales are $10,000, the lender will deduct $1,000 per day until the advance is repaid.

Repayment Period

The repayment period is the time it will take to repay the merchant cash advance fully. This is typically between three months and two years.

Calculate The Total Cost

To calculate the total cost of the merchant cash advance, multiply the holdback percentage by the daily sales and then multiply that by the number of days in the repayment period. For example, if the holdback percentage is 10%, the daily sales are $10,000, and the repayment period is six months (180 days), the total holdback amount would be $18,000 (10% x $10,000 x 180). Add the holdback amount to the amount borrowed to get the total cost of the merchant cash advance.

MCA Average Rates, Fees, And Terms

Generally, merchant cash advance fees are higher than traditional loans, and the interest rates can also be higher. Merchant cash advance fees are typically calculated as a factor rate, which is a multiplier of the amount borrowed. Depending on the lender, the factor rate can range from 1.1 to 1.5 or higher. For example, a factor rate of 1.2 on a $50,000 advance would require the borrower to pay back $60,000. In addition to the factor rate, lenders may charge additional fees, such as origination, processing, and underwriting fees. These fees can range from 1% to 5% of the advance amount. Another important consideration is the repayment terms. These products are typically repaid through daily or weekly automatic withdrawals from the borrower's bank account. The repayment period can range from three months to two years, depending on the terms of the agreement.

Most Common MCA Requirements

Business Revenue

Merchant cash advance lenders typically require businesses to have a minimum monthly revenue, such as $10,000 or more. This is because merchant cash advances are typically repaid through a percentage of the business's daily credit and debit card sales.

Time In Business

Lenders may require businesses to have been in operation for a minimum amount of time, such as six months or more. This requirement helps lenders assess the risk of lending to a new or unestablished business.

Credit Score

While a merchant cash advance company may be more lenient than a traditional lender, they will still consider the business owner's credit score. A credit score of at least 500 is typically required, although some lenders may require a higher score.

Bank Statements

Lenders typically require businesses to provide bank account statements for the past three to six months to verify revenue and cash flow.


Some lenders may specialize in certain industries and may require businesses in those industries to meet additional requirements.

How To Apply For A Merchant Cash Advance

Before you apply for a merchant cash advance, it is crucial to understand the requirements and the process. Here are the steps to take:
  1. Gather the required documents. The documents required will vary depending on the lender. Generally, you must provide financial statements, a copy of your business license, and proof of your business's credit card sales.
  2. Submit your application. Once you have gathered the required documents, you can submit your application to the lender. You can do this process online or in person.
  3. Receive a decision. The lender will review your application and make a decision. If approved, you will receive an offer with the advance details.
  4. Review the offer. You should carefully review the offer and ensure you understand all the terms and conditions.
  5. Sign the agreement. Once satisfied with the terms, you can sign the contract and receive the cash advance.

Best Merchant Cash Advance Lenders

Credibly: For The Lowest Rates

A business cash advance from Credibly can provide businesses with up to $400,000 in as little as 48 hours without needing a personal guarantee or collateral. Credibly also ensures you don't overpay for their services by offering competitive APRs ranging from 9.99% to 36.00%. This allows them to use more funds to help your business grow! Plus, they have helpful customer service representatives who will guide you through the entire cash advance process.

Kabbage: For Smaller Companies

Kabbage is a fintech company owned by American Express. It stands out because its monthly income requirements are relatively low. While some MCA providers require $20,000 or more in monthly income to offer to finance, Kabbage only requires $3,000. This makes it an ideal alternative for small business owners who would not otherwise have access to this type of financing.

Fora Financial: For Large Amounts

Businesses seeking merchant cash advances in exceptionally large amounts may have limited options. Most Fora Financial advances come with flexible financing amounts, up to $1,400,000, so businesses can get exactly what they need when they need it. The exact terms vary depending on specific circumstances but generally involve interest rates between 17.00% and 200.00%.

Stripe Capital: For Companies With Recurring Revenue

If your business has recurring revenue with an online payment processor, you can get the best rates and fastest service from the payment processing company. Stripe Capital offers merchant cash advances from $1,000 up to $250,000 with no additional collateral required. Interest rates range from 1% to 2% per week, depending on your company's specific qualifications and risk factors. The repayment duration varies between 6 months and 2 years, depending on the performance of your business and income projections.

Reliant Funding: For Fast Funding

Reliant Funding offers this financing with competitive rates and flexible payment terms. With them, you can quickly obtain the funds you need when it best suits your company's needs. You must submit basic business information and meet specific eligibility requirements, be in business for at least twelve months, and process at least $5,000 a month in sales volume on platforms like Square or PayPal.

Best Ways To Invest MCA Funds

Working Capital

Many small businesses use MCAs to cover short-term expenses such as:
  • payroll
  • inventory
  • rent
  • other operating costs
MCAs provide the needed capital quickly and without the hassle of a lengthy loan application process. If you know your company is stable and needs a quick injection of funds to keep providing products and services, a merchant cash advance could be right for you.


Businesses looking to expand their operations often turn to MCAs. This financing allows them to access the capital they need to expand faster and with less hassle than a traditional loan. They can help you if you are looking to:
  • launch a new marketing campaign
  • hire more employees to grow your operations

Equipment Purchases

They can help cover the costs if your business needs to purchase:
  • new machinery
  • equipment
  • software
This type of financing is ideal for businesses that need to upgrade their equipment quickly and without a long-term loan commitment.

Business Emergencies

Unexpected emergencies can put a severe strain on a business's finances. A merchant cash advance can provide the necessary funds quickly and with minimal paperwork. They could help keep the lights on until brighter days arrive if your business endures a problem, such as:
  • water leaks
  • large order rejections
  • unusually slow months

Tax Payments

Businesses often use merchant cash advances to pay their taxes. This type of financing is ideal for businesses that need to make large tax payments quickly but lack the funds to do so. While planning and saving for taxes is ideal, real life is not always so neat. If you find yourself in this unfortunate situation, you might decide that the cost associated with an MCA is preferable to the negative consequences of making a late tax payment.

Alternatives To Merchant Cash Advances

Working Capital Loans

Working capital loans provide a lump sum with a fixed repayment schedule and interest rate. This option can help a business cover rent, payroll, and inventory expenses.

Lines of Credit

A line of credit is similar to a loan in that it provides business capital but differs in that the borrower has access to a maximum amount of money they can use when needed. The borrower only pays interest on the money borrowed, and there is no fixed repayment schedule.

Invoice Factoring

Invoice factoring is a form of business financing that involves selling unpaid invoices at a discounted rate to receive immediate cash flow. This option is ideal for businesses that rely heavily on accounts receivable income, such as those in the construction or transportation industry.

Small Business Loans

They provide more significant sums of money at a fixed rate and with a regular repayment schedule. They usually have longer repayment terms, but the rates are generally lower than those of MCAs.

Small Business Loans vs. MCAs

venn diagram comparing business loans and MCAs

Camino Financial: A Great Funding Alternative

While MCAs may seem like an attractive option for small business owners who need quick access to cash, they can end up being a costly and risky choice in the long run. Small business loans, on the other hand, can offer more affordable rates, longer repayment terms, and a more predictable payment schedule. Camino Financial offers small business loans with no hidden fees and fixed terms that could suit your unique situation. Our lending solutions can help your business thrive and grow. Apply for a business loan today


Is a merchant cash advance ideal for small businesses?

A merchant cash advance is a good option for small businesses that can't access other types of loans or need cash ASAP. The process is simple and fast, with funds deposited into your business account within a few days. Additionally, the repayment process is flexible and tailored to your business's cash flow. That said, they're very expensive.

What happens if you default on a merchant cash advance?

If you default on a merchant cash advance, the lender can take legal action against you. This could include filing a lawsuit or garnishing your wages. Additionally, the lender may sell the debt to a collections agency, which could impact your business credit profile.

Is a merchant cash advance a loan?

Merchant cash funding is not technically a loan, but it functions in a very similar way. With a merchant cash advance, you borrow money from a company for a percentage of your future credit card sales.

Are merchant cash advance loans legal?

Yes, merchant funding is legal. This is a type of financing where a business can receive an immediate lump sum of cash in exchange for a percentage of their future credit card sales. This type of financing has become increasingly popular in recent years as businesses have struggled to secure traditional forms of financing, such as bank loans.

How to get out of a merchant cash advance?

There are a few ways to get out of a merchant cash advance. The most common way is to pay off the advance in full. Another way is to negotiate a settlement with the lender. This usually involves paying back a percentage of the advance plus fees. Finally, you could try to file for bankruptcy protection. However, this option is only available if you default on the advance.

Where can I get a cash advance?

Merchant cash advance companies provide short-term loans to businesses in exchange for a percentage of their future credit card sales. They easily get cash quickly, and many don't require a credit check. However, the interest rates can be high, so shopping around for the best deal is essential.

Do merchant cash advances report to business credit bureaus?

No, a merchant cash advance funding does not typically report to credit bureaus, such as Experian or TransUnion. A merchant cash advance is an alternative to traditional financing sources and is a lump sum of capital provided in exchange for a portion of the business's future revenues.

What's the difference between a merchant cash advance and a small business loan?

The main difference between a merchant cash advance and a small business loan is how they are repaid and the fees associated with each option.

What is an MCA loan?

"MCA" stands for Merchant Cash Advance. It is a form of alternative financing where a lender provides a lump sum payment to a business in exchange for a percentage of its future credit and debit card sales.

Prequalify in
5 minutes

Select your desired loan type.

Latest Articles

Prequalify in 5 minutes

  • Stay connected

    Join a community of over 40,000 micro-entrepreneurs for access to informative resources, helpful tips, and best practices on growing your business

  • Mission-driven company

    Camino Financial is a nationally certified Community Development Financial Institution (CDFI) with oversight by the U.S. Department of Treasury. By partnering with other mission-aligned organizations, Camino Financial is able to pool and distribute low-cost funding and educational resources to underbanked minority-owned businesses. Camino Financial is headquartered in Los Angeles, California with supporting offices in Mexico City, Mexico.

© 2024 by Camino Financial, Inc. All Rights Reserved. Camino Financial is a Licensed Finance Lender & Broker in California under its subsidiary Salas & Company LLC.
Camino Financial Better Business Bureau A+ accredited businessCloudflare

11501 Sunset Hills Rd, Reston, VA 20190 || Tel (800) 852-0655

NMLS License: Salas & Company LLC #2186459 | CFL License: Salas & Company LLC (DBA Camino Financial) #60DBO-43053

CDFI Certification Number: 181CE054231