Merchant Cash Advance

A merchant cash advance (MCA) is a lump sum of cash a business receives in exchange for a percentage of its future credit card sales or cash deposits. It is not a traditional loan and often has a faster approval process, a key feature being that repayment amounts fluctuate with daily sales, allowing for more flexibility during slower periods. Instead of interest, MCAs use a “factor rate” to determine the total cost, and providers typically take payments automatically from the business’s credit card processor or bank account.  

How it works

• Receive funds: A provider gives the business a lump sum of cash upfront. 
• Repayments based on sales: A fixed percentage of future credit card sales is automatically deducted to repay the advance. For example, if a business has a $10,000 MCA and a 10% holdback rate, it would pay back $100 on a day it makes $1,000 in card sales. 
• Variable payments: If sales are higher, more is repaid; if sales are lower, less is repaid, which can provide a cushion during slow periods. Some providers may use a fixed daily or weekly withdrawal from a bank account, especially for businesses with less credit card sales. 
• Factor rate: The cost is calculated using a factor rate (e.g., 1.25 to 1.5), not traditional interest. This means there is a set fee, and there is often no discount for paying the advance back early. 

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