A Complete Guide to Merchant Cash Advances (MCAs) For Small Businesses

Jeff Lesko
Jeff Lesko
Jeff Lesko

If your business needs cash to meet an immediate need but doesn’t qualify for traditional business loan options, a merchant cash advance (MCA) provider can get you capital reasonably quickly.

MCA lenders evaluate risk and look at credit scores differently than a banker. Historically, an MCA provider assessed a business’s daily credit card receipts to determine how much of an advance an applicant qualified for.

The payback amount depended on how your business was doing. You paid more on days when sales were good and less on slow days. Today, MCAs are available to merchants that don’t process credit or debit card sales (more on that later).

While most companies appreciate the speed and flexibility this form of financing affords, it can be costly. The higher interest rates plus short repayment periods can place a burden on your cash flow.  Though these criticisms have merit, a reputable MCA finance provider has a lot to offer the right business.

This guide will explore everything you need to know about merchant cash advances, including what is an MCA and how does it work.

How Do MCAs Work?

A merchant cash advance is commonly used by businesses whose sources of revenues are primarily from debit and credit card sales—for instance, retail shops and restaurants. Today, MCAs can be used by entities whose income isn’t dependent on these means.

This type of financing is not a loan. It’s an advance you take and repay based on your future revenue.

MCAs can be structured in one of two ways.

In a traditional MCA (also known as a Credit Card Holdback) the MCA provider gives you a lump sum advance. This amount is then repaid by drawing a fraction of your credit card sales each day until the advance amount (plus fees) is paid in full.

Alternatively, in an ACH MCA agreement, you borrow cash upfront and repay it through fixed Automated Clearing House withdrawals from your business bank account.

Let’s delve a bit deeper into the differences.

What Is an ACH Merchant Cash Advance

ACH is the modern equivalent of MCA funding. Businesses can pursue this form of financing even if they do not rely on debit and credit card sales.

Instead of having a percentage of your daily credit card sales drawn by your lender, in an ACH MCA agreement, fixed payments are remitted each day (or week) over a set term.

Like a traditional MCA, the advance amount is still a future projection of your business’s total monthly sales. Though the ACH option comes with a higher risk for the borrower— in that your payment does not rise or fall with your revenue—this fixed payoff structure generally results in more affordable rates.

Calculating the Cost of MCAs

When it comes to calculating a merchant cash advance, your total cost depends on the factor and retrieval rates.

The factor rate indicates the sum of money you need to pay back. It’s usually in the range of 1.1 to 1.4. To calculate the amount you owe in fees, you multiply the advance amount by the factor rate. For instance, a merchant cash advance of $10,000 with a factor rate of 1.3 would give a repayment amount of $13,000.

The retrieval rate is the percentage of credit card sales that will be deducted every day to pay back the advance. Average retrieval rates range from 5 to 15 percent.

When the cost of MCAs is converted to an Annual Percentage Rate (APR), it can range from 30 to 130 percent or even more. The cost will depend on the nature of your business. Those with a significant and consistent volume of sales tend to get more favorable terms.

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How Are Merchant Cash Advances Repaid?

Merchant cash advances work with a daily or weekly (and in rare cases, monthly) remittance schedule. It means that a certain percentage of your revenue is forwarded directly to the cash advance provider on your behalf.

As we touched on briefly, there are a few different ways to repay a merchant cash advance.

Split Payments

In a split withholding situation, the merchant service provider will take a cut of each credit card transaction. Typically, around 10 to 22 percent of your daily proceeds.

Split processing is considered the easiest repayment method because it’s completely automated. It’s also integrated and requires little effort for both parties involved. While you may still find split withholding arrangements, this repayment method is not as prevalent today as it once was.

ACH Withdrawals

ACH withholding is the most popular way to repay your advance. The provider will automatically deduct funds directly from your business’s bank account.

ACH withdrawals are fixed, based on the lender agreement. The provider will deduct the same amount for each repayment over a specified term.

Trust/Lock Box Withholding

With the trust bank account (or lockbox withholding), the full amount of your credit and debit sales are deposited into a trust bank account. Each day, your provider will deduct their share of the proceeds and send the remainder to your business account. This will cause a one- to two-day delay before you access money from your sales.

Why Choose Merchant Cash Advances (MCAs)

There are multiple benefits in choosing a merchant cash advance, but there are also reasons why you might want to avoid them.

Here are the biggest MCA advantages and disadvantages.

Fast Application Process

A business owner can get a merchant account cash advance within a few days with little paperwork. After initial application and uploading any supporting documentation, such as bank account statements, business tax returns and credit processing records, underwriting and fund dispersal takes as little as one business day.

No Collateral Required

When you want a loan from a bank, it’s apparent that you’ll need to produce collateral to get credit. As MCAs are unsecured, you don’t have to pledge personal assets or business properties to secure one.

Variable Repayments

Traditional MCAs have variable repayments, which means when sales are down, your payment is lower. Conversely, when sales increase, your remittance does too.

No Need for Perfect Credit Qualifications

A good business credit score is a must for most business loans, but MCA providers are more concerned with your future sales projections. As long as you have a strong record of consistent cash flow, you have a good chance of qualifying for a merchant cash advance.

Other MCA Considerations

Merchant cash advance qualifications are flexible with a guarantee of quick capital, but they have some drawbacks.

High Fees

The annual percentage rate (APR) for MCAs is quite expensive. You might have to pay fees that range from 10 to 40 percent of the amount you intend to borrow.

Quick Repayment

MCA remittances occur on a daily or weekly basis. Before you take on a merchant cash advance, confirm your cash flow can accommodate the frequent draws.

Lower Margins

Since an MCA business provider takes a portion of your daily sales, profit margins will drop until you have fully paid off the advance.


Comprehending an MCA can be hard, even for financial experts. If you can’t qualify for a traditional business loan and need quick cash, an MCA may be your best option. As long as you understand how the amount is repaid, factor rates and how they affect the total amount owed, you’re ready to explore MCA financing options.

For additional help in understanding how the funding process works, you can turn to Fast Capital 360 experts. It’s worth considering.

Jeff Lesko Business Advisor at Fast Capital 360
Jeff has helped hundreds of small business owners secure the funds they need to prosper and grow. Relationship building is what inspires his work. For Jeff, it’s not about completing a transaction. It’s about identifying the best financing option for each business owner’s individual need.