How Merchant Cash Advance Works

Merchant Cash Advances (MCAs) have grown rapidly in recent years, with many funders offering different variations. Despite the variety, some fundamentals remain consistent across providers.

Key Aspects

• Advance Amount: Ranges from $2,000 with smaller funders to as high as $2 million with larger ones.
• Payment Frequency: Repayments are typically debited daily or weekly depending on the agreement.
• Buy Rates: Strong businesses may see rates around 1.14, while riskier ventures could face 1.40–1.60.
• Time to Funding: Cash is often available within two days, though larger advances may take 5–7 days.

Applying for a Merchant Cash Advance

MCAs are ideal for businesses needing quick capital or those unable to secure a bank loan. Funders typically accept credit scores as low as 520–550, and collateral isn’t required. They work best for businesses with steady credit card sales, as repayment is tied to a percentage of those transactions.

Requirements usually include:

• Last 4 months of bank statements
• Business bank account
• At least 1 year in business
• Minimum $100,000 annual revenue
• Credit score of 550 or higher

Common Uses

• Managing cash flow gaps
• Funding expansion projects
• Purchasing inventory or equipment
• Debt consolidation
• Emergency expenses
• Marketing campaigns
• Seasonal spikes in demand

Since MCAs are short-term, they are best used for needs that provide quick returns.

History of the MCA Industry

The MCA industry dates back to the 1990s but grew significantly after the 2008 financial crisis, when banks tightened lending. MCAs gave small businesses with low credit scores or limited collateral access to capital they couldn’t previously obtain. However, the industry has also seen predatory practices, with some funders exploiting high rates and hidden terms. Regulatory efforts are ongoing to protect both borrowers and lenders.

Future of MCAs

The MCA market has already provided billions in funding and continues to evolve with fintech innovation. New products like reverse consolidations and partnerships with banks and credit card companies are expanding options. At the same time, more regulations are being enacted to protect both merchants and funders.

Breaking Down the Costs

While MCAs may look affordable at first glance, effective APRs can be very high. For example, a $75K advance with a 1.28 factor rate results in $96K repayment, with an APR nearing 98%. The true cost depends on sales volume and repayment speed.

Pros & Cons

MCA Programs Available

• Standard Cash Advance: Lump sum deposited, repaid through a percentage of card sales.
• Consolidation & Buyouts: Used to pay off existing debts, consolidating into one repayment.
• Reverse Consolidation: Helps cover other debt payments without fully buying them out.
• Installment Funding: Provides money in stages instead of one lump sum.
• Credit Card Splits: Repayments tied directly to card sales, with lockbox processors when necessary.

Funders are constantly developing new programs, especially tailored to seasonal businesses.

A merchant cash advance can be an excellent option if your business needs quick access to capital and can manage higher rates. For lower-cost financing, improving your credit profile may open the door to traditional loans with better terms.