A merchant cash advance (MCA) is a type of financing for businesses that need quick financing for short-term expenses or to cover cashflow shortfalls. However, this can be very expensive financing since the annual percentage rates (APRs) are typically in triple digits, often leading to a cycle of business debt.

You should consider other types of business loan options before a merchant cash advance. Here’s what you should know about MCAs, how they work, and the pros and cons.

What Is a Merchant Cash Advance?

A merchant cash advance offers business owners a lump sum based on future debit or credit card sales. The advance is guaranteed with future revenue.

Unlike loans, MCAs don’t report your repayment history to credit bureaus, so it won’t help you build credit. The eligibility requirements are very lenient, making it an attractive financing option for businesses with bad credit.

“These types of business loans are only good for immediate cash needs that can be paid back quickly,” advises Teresa Dodson, founder of Greenbacks Consulting. “Make sure it's only what your business can afford to pay back within a short period of time,” she adds. 

How Does a Merchant Cash Advance Work?

Merchant cash advance companies review your monthly receipts when you apply for financing. They may also review your credit report as a part of their approval process, but your business’s sales will generally play a major role in determining your financing rate, advance amount, and terms.

Unlike the typical repayment schedule that comes with loans, MCA lenders generally take a predetermined percentage of your daily sales until you fully repay what you borrowed. This percentage is known as the “retrieval rate” or “holdback rate,” and it can range from 5% to 20%.

Repayment Terms

The repayment periods for merchant cash advances are usually short, up to 18 months. An MCA lender can collect their holdback rate in three different ways:

  • The lender can partner with your credit card processing company to collect the agreed percentage from the daily credit card sales, known as an automatic deduction.
  • A separate account can be set up to collect all credit and debit card sales. The lender can collect its portion before the remaining amount is transferred to your business’s bank account.
  • An MCA lender can deduct fixed payments from your business bank account based on your estimated revenue.

Rates and Fees

Unlike loans that have a traditional APR, you’ll pay a factor rate as a fee to a merchant cash advance company. This fee can range from 1.1 to 1.5, depending on a number of factors, such as your industry, personal credit score, business financials, and years in operation.

The riskier your business’s profile, the higher the factor rate can be. Keep in mind that there are other fees you may have to pay to the lender, such as underwriting and administrative fees, which can increase the total borrowing costs.

Eligibility Criteria

The eligibility criteria for merchant cash advances vary based on the lender, but they’re typically very lenient compared to traditional business financing.

Some lenders may want your personal credit score to be at least 500 to 600, while others may be willing to offer advances even with bad credit if you can fulfill their monthly credit card transaction requirements.

Here are the general qualification requirements for an MCA:

  • Minimum credit score of 500
  • One year or more in business
  • Annual revenue of $50,000 or more

3 Merchant Cash Lenders To Consider

While a merchant cash advance is an expensive form of financing and one that we only recommend when no other alternatives are available, your business may have to rely on it in some situations.

We’ve selected our top three MCA lenders based on fast funding, fees, rates, qualification requirements, and flexible terms.

Factor Rate1.081.111.15
Maximum Funding Amount$200,000$600,000$2,000,000
Maximum Repayment Term36 months24 monthsNA
Minimum Credit Score500500500

Pros and Cons of Using a Merchant Cash Advance

A merchant cash advance can provide you access to funds quickly against future credit card sales, but it's not always the right financing option for your business needs. Consider these pros and cons before you apply for an MCA.


  • You can get approved quickly and receive the funds usually within one business day.
  • The application process is usually done online and is quite convenient.
  • Unlike other types of financing, the repayment schedule is based on a percentage of your sales, so payments can be lower when your revenue isn’t very high.
  • MCA providers work with businesses with financial and credit challenges, so their qualification requirements are very flexible.


  • Merchant cash advances are very expensive when compared to unsecured business loans, lines of credit, short-term loans, and other forms of financing.
  • Since merchant cash advance providers don’t typically provide APRs, it can be difficult to compare MCAs to other types of loan products.
  • Since merchant cash advances need to be repaid daily or weekly, it can impact your business’s cash flow.

Who Can Benefit From a Merchant Cash Advance?

A merchant cash advance is usually best for small business owners who need working capital to make their business more competitive and functional. This is especially true for businesses that don’t qualify for traditional bank loans.

An MCA may also be right for startups and businesses that need quick financing to cover shortfalls in emergencies.

Alternatives To Merchant Cash Advances

Due to the high borrowing costs, businesses should only rely on merchant cash advances to cover temporary gaps in cash flow as a last resort. However, you should consider other, less expensive alternatives first.

Small Business Loans

Small business loans are usually less expensive, even if you have poor credit. However, you’ll generally need to meet other requirements like annual revenue and years in business to qualify for unsecured loans for bad credit.

Another option is to apply for a secured loan for higher loan amounts and lower interest rates if you can offer collateral.

Business Lines of Credit

Online lenders that offer lines of credit have loose eligibility requirements, such as six months in business and a minimum credit score of 600. You’ll have a maximum credit limit that you can borrow from whenever you want to cover business expenses.

Invoice Financing

Invoice financing allows you to borrow money against the amounts due from your business’s customers. Instead of waiting for your customers to pay in full, you can get funds immediately to improve cash flow and invest in operations. In return for borrowing money, you’ll pay a percentage of the invoice to the lender as a fee.

Consider a Merchant Cash Advance for Quick Funding

Merchant cash advances can help you cover your business’s day-to-day expenses when you need funds immediately. It’s usually easy to qualify for an MCA, even with bad credit, if you have credit card sales.

However, the daily repayment schedule and high fees make it a last-resort option, especially if you have regular cash flow problems. Consider traditional business loans or other business funding options we’ve listed above before you consider an MCA.