Merchant cash advance loans provide a unique form of financing for small and medium-sized businesses. If you’re considering a merchant cash advance for your company, this in-depth guide covers everything you need to know about how these advances work, eligibility requirements, pros and cons, and alternative financing options to consider.

What Exactly Are Merchant Cash Advances?

A merchant cash advance is a lump sum payment provided to a business in exchange for a percentage of future credit card and debit card sales. The key aspects of merchant cash advances include:

  • Upfront Funding – The lender provides an upfront sum of capital, usually between $5,000 and $500,000. Businesses receive these funds very quickly, often in as little as 24-48 hours.
  • Fixed Percentage of Daily Card Sales – Instead of fixed repayments with interest like a traditional business loan, the merchant agrees to pay back a fixed percentage of their daily credit/debit card sales. Typically between 5-20% of gross daily card receipts.
  • Short Term – Merchant cash advances are designed to be repaid within 3-18 months depending on the size of the advance and the merchant’s sales volumes.
  • Unsecured – The lender does not take any assets/collateral from the business. The card sales percentage provides their repayment guarantee.
  • No Personal Guarantee – Business owner’s personal credit or assets are not at risk if the MCA is not repaid in full.

So in essence, merchant cash advances provide quick capital in exchange for a piece of future card sales at the merchant’s business until the total advance amount plus fees are repaid. The remaining card receipts are kept by the merchant.

How Do Merchant Cash Advances Work?

The merchant cash advance process is relatively quick and simple compared to traditional small business loan options. Here are the typical steps:

1. Business Applies

The process starts with a business completing an application with an MCA provider, either through a website form or over the phone. The application collects basic information about the business, requested amount, monthly card volumes, and ownership/location details.

2. Underwriting

The MCA provider analyzes the business’s eligibility based on factors like time in business, card processing volumes, credit scores, and outstanding debts. This underwriting is often more lenient compared to banks.

3. Approval Decision

The lender makes an approval decision within 1-3 days normally. Once approved, they determine the maximum advance amount and percentage of daily card sales required to repay it within their target period.

4. Merchant Accepts Terms

If the merchant accepts the MCA offer terms, they then complete an agreement granting the lender access to debit the agreed upon percentage of card transactions.

5. Funding

After signature, the MCA provider transfers the lump sum amount directly to the merchant’s business bank account, often within 24 hours. Some deposits can be same-day.

6. Daily Repayments

The lender works with the merchant’s payment processor to collect the fixed percentage of card receipts until the balance is paid. The remaining sales proceeds continue flowing to the merchant’s account.

7. Full Repayment

When the total advance plus fee amounts are repaid through the card deductions, the agreement ends. The full card receipts are restored to the merchant account.

Throughout this process, the lending experience is designed to be quick, convenient and “hands-off” compared to traditional financing that requires lengthy applications, credit checks, and manual loan servicing.

Merchant Cash Advance Eligibility

Since merchant cash advances carry more risk for lenders than secured loans, approval is based on some key eligibility factors:

  • Time in Business – Most providers require at least 6-12 months in operation. Startups may still qualify but usually need stellar credentials otherwise.
  • Credit Card/Debit Volumes – Minimum monthly processing volumes of around $5,000+ are typical. Higher volumes increase approval chances.
  • Credit Scores – Personal credit scores above 600 and business scores over 80 help probability of approval. Poor scores don’t necessarily exclude merchants.
  • Outstanding Debts – No active bankruptcies or tax liens. Defaulted loans can impact eligibility depending on circumstances.
  • Collateral – MCAs are unsecured, but merchants with clear business ownership or real estate get better terms. Renters can still qualify.
  • Industry – All retail/service businesses are generally eligible. Newer e-commerce companies may also qualify with sufficient sales history and volumes.

The underwriting for merchant cash advances takes a more holistic look at the business’s overall financial health rather than just personal credit scores. Having sufficient and consistent card processing volumes is the key factor that helps businesses qualify and repay their advance.

The Pros and Cons of Merchant Cash Advances

Compared to traditional financing options, merchant cash advances provide unique advantages along with some potential drawbacks businesses should consider:


  • Fast funding – Merchants receive lump sums in as little as 24-48 hours after approval. Much faster than securing loans.
  • Simple qualification – Approval is based more on card sales versus personal credit scores. Easier to qualify than bank loans.
  • No collateral required – MCAs do not take liens against business assets or property.
  • No personal guarantees – If the MCA isn’t fully repaid, the business owner’s personal credit or assets are not affected.
  • Flexible repayments – Daily deductions from credit card sales rise and fall with revenue. Helps cash flow management versus fixed loan payments.
  • All credit situations – MCA eligibility is generally more lenient than conventional lenders for those with past credit challenges.


  • Higher costs – When factoring fees and total repayment amounts, the equivalent APR of an MCA is typically higher than a bank loan.
  • Variable repayments – While flexible with sales fluctuations, unpredictable daily deductions make financial planning harder.
  • Short term solution – MCAs address immediate financing needs but won’t necessarily help long-term growth strategies.
  • Potential impact on future financing – High MCA repayment deductions could make it harder to subsequently qualify for loans.
  • Use of funds restrictions – Some MCA providers limit allowable uses for the lump sum payments.

Overall, merchant cash advances are best suited for established businesses with immediate working capital needs, limited financing options, and sufficient credit card revenues to comfortably manage daily deductions. They provide fast access to funds compared to loans, but at higher long-term costs.

What Merchant Cash Advances Can Be Used For

Merchant cash advances give small business owners flexibility in using the lump sum payments to address various short-term needs:

  • Covering payroll, rent, utilities or other operating expenses during slow sales cycles or emergencies.
  • Purchasing additional inventory to meet customer demand or seasonality.
  • Expanding marketing efforts through paid ads, promotions and social media investment.
  • Hiring employees for new projects or location expansions.
  • Purchasing new equipment like delivery vehicles to improve operations.
  • Settling tax liens or other debts carrying high interest rates.
  • Repairing facilities due to accidents, weather damage or normal wear-and-tear.
  • Replenishing cash reserves and increasing working capital.
  • Launching a refreshed brand identity or website to stimulate growth.
  • Renovating retail spaces to attract additional foot traffic.

Some MCA providers may exclude certain business types or place restrictions on allowable uses for the lump sum payment. Merchants should clearly understand the advance terms to ensure their intended use is permitted.

While merchant cash can quickly solve many pressing financial needs, they work best as short-term solutions rather than long-term growth capital meant for major expansions or transformations. Their higher costs may outweigh benefits for larger strategic investments.

How Merchant Cash Advance Costs Compare

One of the biggest considerations with merchant cash advances is their total cost compared to other financing options. A few key factors influence MCA costs:

  • Advance Size – Typically $5,000 to $500,000. The larger the lump sum, the longer it takes to repay through daily card deductions.
  • Payback Term – MCAs are structured for full repayment in 3 to 18 months. Longer terms mean more total fees but smaller daily deductions.
  • Fixed Repayment Percentage – Standard fees range from 1-20% of daily future card sales. Higher percentages repay the advance faster but decrease cash flow.
  • Other Fees – Some providers charge application fees, origination fees, or prepayment penalties.

Based on these costs, the equivalent annualized interest rate (APR) on merchant cash advances often ranges from 30% up to 80%+ in some cases. By comparison, small business loan rates typically fall between 5-36% APR based on factors like loan amount, terms, and the business’s credit profile.

However, APR is not a perfect comparison, since MCAs deduct varying amounts each day rather than requiring fixed repayments with interest charges added. Their flexibility and conveniencetheir flexibility and convenience can offset higher equivalent APRs for some merchants. It’s important to run the numbers based on your specific situation rather than just comparing rates.

For a $100,000 MCA repaid in 12 months at 15% of daily card sales, the total repayment amount with fees might be $145,000. That equates to a 45% APR. But if the flexibility helps you increase sales by $50,000 over that same period, the net cost difference compared to a lower interest bank loan may be negligible.

EvaluateMCAs based on how the improved cash flow and convenience impacts your profitability, not just by equivalent interest rates. Crunch the numbers based on your specific situation.

What About Merchant Cash Advance Cons?

While merchant cash advances provide a viable short-term financing option for many businesses, there are some potential drawbacks to consider:

  • Daily deductions from card sales can squeeze cash flow, especially if revenue drops unexpectedly. Careful monitoring and projections are essential to avoid falling behind.
  • It can be more difficult and expensive to obtain additional financing while repaying an existing MCA, since deductions reduce disposable income.
  • If not used strategically, merchant cash may only temporarily alleviate challenges like declining sales or thin margins rather than correcting them.
  • Some providers include “confession of judgement” clauses, allowing them to secure repayment from business or personal assets in a default scenario. Read agreements carefully.
  • Since MCA repayments are tied to credit card sales, businesses with more cash/check revenue may pay a disproportionately high percentage compared to their overall earnings.
  • Taking an MCA to repay previous debts could be seen as a sign of distress by other lenders, impacting your future creditworthiness if not managed prudently.

While certainly not a fit for every small business, being aware of these potential risks and downsides allows you to make an informed financing decision aligned with your circumstances.

Alternative Financing Options Beyond MCAs

If a merchant cash advance doesn’t seem like the right solution after reviewing costs and risks, many other financing options exist too:

SBA Loans – Government guaranteed small business loans with long terms and reasonable interest rates for qualified applicants. Approval takes 1-3 months but provides the most affordable capital.

Bank Loans – Conventional term loans and lines of credit from banks or credit unions. Rates and fees are lower than MCAs but approval depends heavily on credit scores.

Invoice Factoring – Sell unpaid customer invoices for immediate cash flow at a small discount fee. No fixed daily payments. Flexible based on sales.

Equipment Financing – Loans specifically to purchase new equipment. Usually fixed payments with flexible terms. Financing tied to asset value.

401(k) Business Financing – Use retirement savings as capital for your own business. No credit check required but retirement funds are at risk if the business fails.

Crowdfunding – Raise small amounts from a large pool of supporters through online fundraising platforms. Provides marketing exposure but requires extensive promotion.

Credit Cards – While costly long-term, low introductory rates on credit cards or 0% balance transfer offers can assist short-term cash needs if managed correctly.

Grants – Federal, state, non-profit, and private grant programs provide financial assistance for underserved groups or business activities with community impact.

Angel Investors – Individual investors who provide capital to startups in exchange for equity stakes and playing an advisory role.

With this wide range of options to address various needs, most businesses can find an appropriate financing solution aligned with their risk tolerance, growth objectives, and ideal terms.

Key Takeaways – Merchant Cash Advance Loans

  • Merchant cash advances provide fast business financing by purchasing a percentage of future card sales.
  • Approval is based primarily on consistent card processing volumes rather than business/personal credit scores.
  • MCAs offer funding in days, no collateral, and flexible “pay-as-you-go” deductions from daily credit card receipts.
  • When evaluating MCAs, focus on how their cash flow advantages can boost profitability, not just their high equivalent interest rates.
  • Consider both short and long-term impacts on financial health before using an MCA. Have contingency plans to avoid repayment problems.
  • Many great alternatives like SBA loans, invoice factoring, and grants exist. Choose the business financing strategy that best aligns with your risk tolerance and needs.

Frequently Asked Questions

Q: How quickly can I get merchant cash advance funding?

A: The fastest providers can deposit your lump sum payment within 24-48 hours of being approved. Most fund between 1-3 days after acceptance.

Q: Where does the money from merchant cash advances come from?

A: MCA providers source capital from private investors and hedge funds. They provide the cash up front in exchange for the right to collect the agreed upon percentage of future card sales.

Q: Can I get multiple merchant cash advances at once?

A: While possible, taking several simultaneously can strain cash flows through compounded deductions. Most avoid stacking MCAs. Look for providers willing to refinance/consolidate.

Q: Are my credit card sales rates affected by merchant cash advances?

A: No, your credit card processing rates should remain the same. Deductions to repay the MCA come out of the net proceeds paid to your account.

Q: Can an MCA hurt my credit rating if I can’t fully repay?

A: One benefit of merchant cash advances is they do not impact personal credit scores or appear on business credit reports. However, future lenders may view repayment difficulties as a sign of risk.


For companies needing quick access to capital for growth or operating expenses, merchant cash advances offer a viable short-term financing solution. Their minimal eligibility requirements provide funding opportunities to those who may struggle to qualify for bank loans. However, be sure to weigh their benefits against potential drawbacks and alternatives that may better match your business goals. With the right education on how merchant cash advances work and what they cost, you can make a smart funding decision.