What is a Merchant Cash Advance? Complete Guide 2025

A merchant cash advance (MCA) is a type of business financing where a company receives a lump sum of capital in exchange for a percentage of future credit card sales or daily bank deposits. Unlike traditional business loans, MCAs are not technically loans but rather cash advances based on future revenue.

The merchant cash advance process is relatively straightforward compared to traditional business loans. Key components include the advance amount, factor rate (typically 1.1 to 1.5), holdback percentage (usually 10-20%), and total payback amount.

Merchant cash advances typically have more lenient qualification requirements compared to traditional bank loans. Most MCA providers accept credit scores as low as 500-550, with minimum monthly revenue of $10,000-$15,000.

Understanding the true cost of a merchant cash advance is crucial for making an informed decision. Factor rates typically range from 1.1 to 1.5, meaning you'll pay back 10% to 50% more than you received.

Advantages include fast approval (24-72 hours), flexible repayment, lower credit requirements, and no collateral required. Disadvantages include high costs, daily collections, personal guarantee requirements, and debt cycle risk.

Merchant cash advances can provide quick access to working capital for businesses that need immediate funding. However, the high costs make them an expensive form of financing that should be carefully considered.