Merchant Cash Advances: How They Work

Merchant Cash Advances: How They Work

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Merchant cash advances (MCAs) provide small business owners with an alternative financing option separate from traditional bank loans. Business owners receive financing upfront from a merchant cash advance provider and pay for the advance with a percentage of the business’s daily sales.

Merchant cash advances are a good option for small business owners who collect payments through cash, checks or credit cards (as opposed to invoices), have a high volume of sales, need funding quickly or who may not qualify for a traditional bank loan.

How Does a Merchant Cash Advance Work?

Merchant cash advances provide funds to small business owners in exchange for a percentage of the business’s income (usually credit card transactions) over time. Payments are typically made daily (and automatically) as the business generates credit card transactions. The total amount to be repaid is calculated by a factor rate, a multiplier generally based on a business’s financial status.

Example: John owns a seafood restaurant in New York and has a big event coming up in a week that could make or break his business. Due to a recent storm, John’s normal seafood supplier was unable to fulfill his last order.

John is desperate and finds another supplier who can fulfill his order for three times the normal price, but he doesn’t have enough money in his business accounts to pay for the price increase. He does not qualify for another small business loan, since he’s still paying down a previous debt. So, he decides to obtain a merchant cash advance.


Advance amount$20,000
Factor rate1.25
Total repayment amount$25,000
Deduction percentage10% of daily credit card transactions
Estimated term12 months

John receives a cash advance of $20,000 with a factor rate of 1.25, which means he’d owe a total of $25,000 for the advance ($20,000 x 1.25). The terms of the merchant cash advance are such that John will repay the advance with 10% of his daily credit card sales, and the MCA provider estimates this will take about 12 months.

If John’s restaurant generates an average of $700 in credit card transactions per day and 10% automatically goes to the MCA provider, he’d pay about $70 each day toward that $25,000, and his advance would be paid off in just under 12 months.

If his daily credit card revenue grows, so would his daily MCA payments, and the balance would be paid off even sooner; however, he would still have to pay the full amount of $25,000.

Merchant Cash Advance Terms and Features

Merchant cash advances offer small business owners a quick and easy method to get funding immediately. The application can usually be completed and approved within one business day. There’s a high approval rate and funding is usually available within a day or two. In addition, unlike many traditional business loans, merchant cash advances do not require collateral.

The table below will give you a general idea of the terms and rates you can expect from typical merchant cash advance providers.


Low Range
High Range
AmountAs low as $2,500$5,000 to $500,000Up to $1 million
Factor RateAs low as 1.09Varies by lender and businessAs high as 1.5
Deduction Percentage5% of sales10% of sales20% of sales
Payment Period3 months12 months24 months
Payment FrequencyDaily or WeeklyDaily or WeeklyDaily or Weekly

However, there are also some big downsides to merchant cash advances, including the fact that they are usually pricier than traditional small business loans. Merchant cash advances generally cost 20% to 50% more than the principal amount. And unlike traditional loans with APRs, your daily payments don’t diminish the interest-bearing principal amount — the fee is due no matter how quickly you repay the advance.

MCA regulation

In addition, depending on your state, you may be less protected than you would be when taking out a traditional loan. Merchant cash advance regulation is less developed, since MCAs are not technically loans. As a result, some state courts have said that typically state usury laws or licensing requirements wouldn’t apply to MCA providers.

As you search for the right merchant cash advance, it’s important to compare your options. There are certainly a number of credible providers on the market, but some offer better rates than others, and not all may provide advances in the amounts you need. To help, we’ll review some trustworthy financial institutions later in this guide.

How to Qualify for a Merchant Cash Advance

The good news is that qualifying for a merchant cash advance is relatively easy. Most providers offer an easy online application with quick turnaround times. Applying only takes a few minutes, and you should have an answer within one or two business days.

Unlike traditional business loans, applicants do not necessarily need to have multiple years operating as a business to qualify. While a lengthy operating history and good credit can help applicants obtain favorable payment terms, a short operating history and poor to average credit won't necessarily preclude applicants.

One factor that providers look at closely is whether the business has a consistently high sales volume. Small business owners seeking to apply should be prepared to submit:

  • Information about your company structure
  • Annual business income
  • Estimated future income growth
  • Bank account statements
  • Credit card processing statements and credit check authorization

Merchant Cash Advance Companies

There are countless providers that offer merchant cash advances with quick and easy online applications — we’ve listed a few below.

RapidFinance: Best for those with bad credit

Formerly known as RapidAdvance, RapidFinance rebranded itself in 2019 to accommodate the broader set of small business loans and financial tools it offers. However, the lender still offers the merchant cash advance on which it built its brand.

Business owners can access $5,000 to $500,000 in as little as one business day after approval. And the best part? You may be able to get an advance even if your credit is below 550. You can apply online or over the phone, though in some cases, RapidFinance may prompt a representative to contact you over the phone to complete the process you started online.

To apply, you’ll need:

  • A government-issued photo ID
  • A voided check from your business’ checking account
  • Your business’ last three bank statements
  • Your business’ last three credit card processing statements

CAN Capital: Best for those who need small amounts

CAN Capital offers merchant cash advances in amounts from $2,500 to $250,000, with repayment terms of six to 18 months (most other MCA providers do not offer less than $5,000).

Businesses will need to have been in operation for at least six months with a gross revenue of at least $150,000. (While CAN does not specify the time period for this revenue, it is likely annual; however, if you’re seeking an MCA through it would best communicate with the company.) They must also have less than $175,000 in outstanding tax liens or judgments and no outstanding personal or business bankruptcies within the past year.

The online application process is quick and accounts may be funded in as little as two business days. Be aware that a one-time administration fee of $595 will be drawn from your bank account the day after funding. This fee would constitute a large percentage of your advance if you take out a very small amount.

Capify: Best for those looking for flexible amounts

Capify offers merchant cash advances in broad amounts: as little as $5,000 to as much as $1 million.

Businesses will need at least 60 days of credit card processing history and at least $5,000 in monthly credit card sales volume. You can apply over the phone or online and get a decision within 60 seconds. Accounts are funded within a few days.

Fora Financial: Best for flexible eligibility requirements

Fora Financial offers merchant cash advances of $5,000 to $500,000 in as little as 72 hours from the time of approval. You can apply online and will receive your approval status within 24 hours. There are no set repayment terms for Fora Financial’s MCAs.

To qualify, businesses must have been operating for at least six months, with just $5,000 in credit card transactions over the past three months. You also cannot have had any open or dismissed bankruptcies within the past year.

To apply, you must provide three months of credit card statements and bank statements. You may also need to provide tax returns, a current balance sheet or a profit and loss statement.

Is a merchant cash advance right for your business?

MCAs are valuable for businesses that need working capital but can’t qualify for a traditional loan. They are especially useful if you need to bridge a short-term gap in funding and don’t want to commit to a long loan term. However, that doesn’t mean it’s right for everyone.

“A merchant cash advance is different from a loan, and a business owner needs to read the contract and understand the transaction,” said attorney Kate Fisher. “It requires a little bit more education.”

Pros of a merchant cash advance

  • Flexibility: One of the largest advantages to merchant cash advances is that payment amounts are not set in stone. “The obligation to pay is linked to the business’ actual revenue,” Fisher said. “It can be helpful for businesses that have fluctuation in their cash flow.”
  • Good credit not required: Since MCAs are based more on your business’s monthly cash flow, your personal and business credit don’t play as large a role in determining your eligibility. To be clear, good credit is still preferred, and MCA providers may impose some requirements. But if your business consistently generates credit card transactions, you may be able to qualify even with bad credit.

Cons of a merchant cash advance

  • High factor rates: “As a general rule, [MCAs] can be more expensive,” Fisher said, comparing merchant cash advances to loans. That’s not always the case — some lenders may have higher rates and fees for certain loan borrowers — but generally, MCA providers charge more since their risk is tied to a business’s revenue.
  • Penalized for paying early: Since rates are not amortized over a repayment term, if your revenue increases and you pay back the advance ahead of schedule, your effective APR increases.
  • Administrative fees: In addition to high factor rates, some MCA providers also tack on extra administrative fees. These are typically debited from your account shortly after a loan is disbursed, and if you’re only borrowing a lender’s minimum advance amount, it could constitute a significant percentage of your funds.

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