What Is Merchant Cash Advance (MCA) & How Does It Work?

What Is Merchant Cash Advance (MCA) & How Does It Work?

What Is Merchant Cash Advance (MCA) & How Does It Work

Merchant Cash Advance (MCA) is an alternative financing option that offers businesses quick access to capital. It is particularly popular among small businesses that may not qualify for traditional bank loans. In this post, we will explore the concept of merchant cash advance and how it works, highlighting key points and elaborating on each of them.

Definition of Merchant Cash Advance

A merchant cash advance is a type of financing in which a company receives a lump sum of money in return for an amount representative of its future sales. It is not a loan. The “funder,” who provided the cash advance, is paid back using a portion of the company’s daily credit card or debit card sales.

How Does Merchant Cash Advance Work?

When a business seeks a Merchant Cash Advance, the funder evaluates the business’s sales history, particularly credit card or debit card transactions. Based on the assessed sales volume and potential, the funder determines the amount of the advance and the repayment terms.

Repayment Structure

Unlike traditional loans that have fixed monthly payments, Merchant Cash Advance repayments are based on a percentage of the business’s daily sales. This means that on each business day, a predetermined percentage of the credit card or debit card sales is deducted as repayment until the advance and any applicable fees are fully repaid.

Advantages of Merchant Cash Advance

  • Quick Access to Capital: Merchant Cash Advance offers a relatively fast application and approval process, with funds often available within a few days.
  • No Collateral: Merchant Cash Advances are unsecured, meaning businesses do not need to provide collateral or assets to secure the funding.
  • Credit Score Flexibility: MCA providers typically focus more on the business’s sales history rather than personal credit scores when determining eligibility.

Factors to Consider

While Merchant Cash Advances offer benefits, it is important to consider the following factors before opting for this financing option:

  • Higher Costs: Compared to traditional loans, merchant cash advances frequently have higher fees and interest rates, making them a more expensive financing option.
  • Impact on Cash Flow: Since a percentage of daily sales is deducted for repayment, businesses should carefully assess the impact on their cash flow and ensure it aligns with their operational needs.
  • Sales Volume Dependency: MCA repayment is directly linked to sales volume, meaning if sales decline, the repayment amount will also decrease. However, during periods of high sales, the repayment amount will increase.

Eligibility Criteria

The eligibility criteria for Merchant Cash Advances can vary among funders. Typically, funders consider factors such as the business’s sales history, credit card processing volume, and time in business. Many MCA providers are open to working with businesses that may not qualify for traditional loans due to lower credit scores or shorter operational histories.

Application Process

The application process for a Merchant Cash Advance is generally less stringent compared to traditional loans. It often involves submitting basic business information, recent bank statements, credit card processing statements, and sales volume history. The simplicity and speed of the application process make it an attractive option for businesses in need of quick capital.

Alternative Financing Options

While Merchant Cash Advances can be beneficial in certain situations, businesses should also explore other financing alternatives, such as traditional loans, lines of credit, or small business grants. Each option has its own advantages and disadvantages, and it’s important to evaluate them based on your business’s unique needs and financial situation.

A Merchant Cash Advance provides businesses with an alternative financing option, offering quick access to capital based on future sales. While it can be a viable solution for businesses that may not qualify for traditional bank loans, there are several important considerations to keep in mind. The repayment structure based on a percentage of daily sales can impact cash flow, and the higher costs associated with Merchant Cash Advances should be carefully evaluated. Additionally, businesses should assess their eligibility criteria and explore other financing options to make an informed decision.


Mark J. Kane is a successful entrepreneur spending the last 16 years lending money to business owners. Beginning his career as a psychologist, at the age of 23 he became the youngest Hospital Admin running a 100+ bed facility. He built two businesses to over 500 employees and a business from scratch to over $18M in revenue in 18 months before selling. This experience led him to begin Sunwise Capital.

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