Customer paying for order in grocery shop using a credit card while cashier is using a credit card reader. Concept: merchant cash advance
Betsy Wise
By: betsy_wise
Read in 14 minutes

What Is a Merchant Cash Advance?

Working capital is high on must-have lists for small business owners. Cash flow keeps your business humming along and merchant cash advances seem like the quickest deal available. But, what is a cash advance? Before you learn about this option and move into the fast funding lane, here’s something to consider: getting your hands on quick cash could cost more than you bargained for. This in-depth article details how a merchant cash advance works (also referred to as MCA), its pros and cons, and what’s required to qualify for one. You may be surprised that other alternative lending options are just as appealing and more advantageous in the long run.

What is a Cash Advance?- The Basics

What is a cash advance?  Cash advances, also called merchant cash advances, are a financing option that gives access to usually small amounts of money during a short period of time. Based on credit card sales, businesses receive advances of cash usually by direct deposit from a finance company.

  • Funding amounts could average $5,000 – $1,000,000 depending on a business’s annual credit card sales.
  • The business owner agrees to pay back the loan to the MCA lender based on a percentage of sales in exchange for immediate capital. This results in paying the MCA lender back daily -if that’s how often you get paid by your credit card processor. For example, on a lump sum advance of $25,000, business owners can choose to pay back 10% (or a different percentage) of sales daily, weekly, or monthly based on the business’s average credit card revenue per month. That percentage is referred to as the holdback percentage until the advance, plus fees, are repaid to the lender.
  • Business owners agree to repayment terms based on a factor rate which averages between 1.1 to 1.4. For instance, when applying a 1.2-factor rate to the same $25,000 advance mentioned earlier, the total repayment amount would be $30,000. Have in mind that this can result in a very expensive form of financing. Paying a 1.2 factor rate on a 4- month loan is equivalent to an APR of 121%! Prior to applying for a MCA, we strongly recommend you to use a Factor Rate to APR Converter to know exactly the cost of your MCA and how it would compare to the interest in a traditional loan.
  • MCAs are typically short-term: the funding lasts between 3 and 12 months.
  • One benefit of MCAs is that lenders usually are very flexible about the credit score you have (remember: a solid credit score is one of the most common requirements among traditional lenders). They typically don’t have a minium threshold and base their credit decision mainly on the merchant account activity.
  • MCAs appeal to business owners who need cash fast to purchase new equipment, replenish inventory, or have more money on hand to cover payroll so their business thrives. MCAs are also attractive because typically you’ll have money in the bank within 2-5 days. Advances are easier to qualify for compared to small business loans. For instance. they don’t require collateral.

However, before you consider applying for a MAC lured by the lack of collateral, the quick access to the funds, and the fewer requirements, consider other options. Camino Financial is an alternative lender that doesn’t require collateral, with less strict requirements than most lenders, and with a fast and easy process: you can receive your funds within 4 to 10 business days.

Pros and Cons of Merchant Cash Advances


Quick cash to achieve business goals
A lower credit score doesn’t usually prevent you from qualifying
Conducive for seasonal businesses like some restaurants, retail merchants, and tourist services where sales fluctuate
Streamlined application with fewer requirements than most small business loans
As in any other business loan, the cost (in this case lender fees or factor rate) can be deducted as a business expense on your taxes


Must have a credit card processor account
Annual percentage rate averages 80%-120%
Some lenders require a 2+ year history of credit card sales
Annual credit card sales should be at least $50,000
If sales are low, it takes longer to repay MCAs
They are an “aggressive” form of financing and lender can add fees between 5 and 10% of the loan amount
MACs are not subject to Federal regulation, resulting in little transparency in how fees are disclosed
High costs and repayment frequency can cause cash flow problems
Short repayment terms: average between 3 and 12 months
Late fees may apply

Requirements to Qualify for a MCA

  • As already mentioned in the pros and cons comparison, annual sales should be at least $50,000 and usually, you need to supply two years’ worth of actual credit card sales (although some lenders may settle for less time in operations).
  • Your FICO credit score, as we have seen above, is not one of the main requirements. This is different from most lenders, who use your credit score to evaluate your credit risk and thus calculate the interest rate you’ll be applied. However, lenders of MCAs have very low credit score thresholds since they base their decision mainly on the merchant account activity.
  • You probably already have a credit card processor account but you may need a different one that’s compatible with the lender’s requirements.
  • Most applications require your social security number and business tax ID number. In addition to answering general questions about your business, required documentation includes copies of bank and credit card statements. Finally, you may be asked for proof of citizenship or to provide copies of your business lease agreements.

Applications are available online and are straightforward and simple. Approval normally occurs as soon as 24 hours with funding in a few days. Depending on whether you prefer daily, weekly, or monthly repayment terms, repayment can begin as soon as your merchant account is active.

Even though MCAs do not have stringent requirements, they do come with hefty holdback percentages and factor rate repayment fees. In some instances, they make good financial sense when credit card sales are consistently high so repayments don’t take a bite out of available cash. But don’t forget that there are alternative financing options that provide business loans with the same (or more) benefits and for much less.

Similarities and Differences Between MCAs and Business Loans

  • Merchant cash advances aren’t loans because they’re based on future credit card sales. Bust just like a small business loan, they are a short-term financing option.
  • Both types of funding options offer lump sums to borrowers but loans carry a fixed rate whereas MCAs are based on percentages of credit card sales which vary.
  • Business term loans have fixed monthly payments, whereas MCAs are paid daily, weekly or monthly depending on the transaction volume.
  • With a loan, you always know the repayment amount. However, MCA repayment amounts vary daily, weekly, and monthly.
  • As of 2019, the average APR on small business loans repaid within 7 years is between 7.75% and 9.75% (based on amounts less than $25,000 to over $50,000). For example, Camino Financial loans start at 7.75% but cap at 29%. In contrast, the APR on MCAs is much higher: it averages between 80%-120% annually. You can compare here the different interest rates in different lenders and types of loans.
  • Conventional small business loans may require collateral, income that’s 1.25 times more than expenses, and copies of income statements and balance sheets. MCA lenders don’t require collateral nor need to review income and operating expense summaries. Their priority is that you have sufficient credit card sales so you can repay the advance.
  • Most conventional loans require a good to an excellent credit score while MCAs can be approved when an applicant has a poor credit history.
  • Business loans can be authorized for 20% of revenue while merchant cash advances qualify for about 50% of annual credit card sales.

Bottom Line: Are MCAs Right for You?

MCAs are attractive alternatives when cash isn’t readily accessible or you don’t want a loan to appear on your credit report. They can be a reasonable financial solution for seasonal businesses. However, keep in mind that using a merchant cash advance instead of a business loan has the potential for debt to spiral out of control.

If MCAs pique your interest because the application process seems more favorable or you need funds ASAP, be aware that there are other alternatives to consider.

Applying for a small business loan from Camino Financial is as simple and quick as a merchant cash advance: you can get your funds within 4 to 10 business days. But the benefits don’t stop there: there are additional advantages that MCAs don’t offer, namely these:

  • Loan amounts between $5,000 and $400,000 that adapt to any of your business needs
  • Comfortable and stable monthly repayment terms between 24 and 60 months, with fixed payment amounts each month
  • Monthly interest rates from 1% to 2.5%
  • When making timely payments, you build your credit, so you can qualify for more future funding
  • Minimum requirement of $30,000 in annual sales and 9 months operating as a registered business, a quantity and time frame much smaller than those required in a MCA

When comparing MCAs and small business loans, their differences and outcomes are a lot like Aesop’s Fable, “The Tortoise and the Hare”: while the rabbit rushed and acted too quickly, the turtle won the race because it moved at a steady pace. By rushing ahead too soon you may commit to a merchant cash advance and realize too late that a small business loan was the better option.

Why not connect with Camino Financial today and let one of our financial specialists help guide you through every step of the loan process. The online application is free, doesn’t affect your credit score, and you can know instantly if you’ve pre-qualified. After submitting basic financial records, we’ll offer the best financial solution for your business needs. Once you agree with the offer and terms, you’ll receive funding in a few days. It’s actually that simple!

When you cross the finish line ahead of business owners that opted for merchant cash advances (and wish they hadn’t) you won’t be knee-deep in unpaid debt and you’ll have peace of mind knowing you made the right decision.

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