Vanta Commercial Lending

The Merchant Cash Advance Options Available To Your Business

Merchant Cash Advances, or MCA, are an effective way for a business to process credit cards, allowing them to gain access to funds right away. 

A Brief Overview

MCAs allow lenders to purchase some of your company’s future revenue. In exchange, you’ll receive an advanced payment from them in a lump sum. Your payments will change based on the volume of your sales, which means you won’t have to deal with a payment that you can’t afford to pay. It’s typical for payments to be drawn from your merchant account on either a daily or weekly basis. 


  • It’s an option for those with poor credit
  • The process is fairly simple
  • It’s something businesses of many types can use


  • The APR can be fairly high
  • Because you’ll be paying payments on a daily or weekly basis, your cash flow will be reduced
  • It can make it harder to change merchant service providers

About Merchant Cash Advances

You shouldn’t look at an MCA as a loan from a merchant. Instead, it’s a cash advance of revenue you’ll earn in the future. If your business fails, you won’t be obligated to pay it back. The payments are deducted automatically from the revenue your merchant account generates until the advance has been paid in full. 

How MCAs Work 

An MCA is a way for a lender to purchase some of your company’s revenues in the future. 

In some cases, an MCA company may need to see both bank and merchant processing statements to see if you qualify for an advance. These statements can also determine the size of advance you are eligible for. 

In some cases, a personal credit check may be necessary. 

Once this information has been submitted to the company offering the MCA, they will present you with the terms of your advance and let you know what they are offering you. 

After you have been approved and accepted to terms, these funds will be deposited into your account so that you can use this working capital to expand your business. 

MCA Repayment Options 

There are three main ways to repay an MCA advance:

  1. Split Withholding: This repayment method automatically deducts payments from a merchant account and transfers them back to the MCA provider via your credit card processor. 
  2. Trust Account or Lock Box Withholding: This method deposits credit card sales into an account that the finance company controls. They subtract the payment that they are owed and transfer the remainder back to the business account. 
  3. ACH Withholding: This type of repayment plan automatically debits funds from a business checking account. 

Structure for MCA Repayment 

Repayments are typically structured in one of two ways: 

  • Credit Card Percentage Sale Structure: In this scenario, the percentage of sales is decided in advance. The percentage will be based on projections for your monthly revenue. 
  • As sales can fluctuate from one day to the next, your payment won’t always be the same. This means that the total repayment period could be longer. 
  • Fixed Payment Structure: This structure functions more like a loan. You’ll be making either a daily or weekly payment that will be determined by monthly revenue estimates. Your payment will be consistent, even if your sales fluctuate. 

Costs Associated With An MCA 

Like with all types of financing, the primary cost of an MCA will be your interest payments, aka the factor rate. 

Here’s a quick example of what your costs might look like. 

If your advance is $30,000, and the factor rate is 1.2, the total repayment would be $36,000, making your interest costs $6,000. 

While this may seem like a fair deal, there’s something else that much be considered: the annual percentage rate, or APR. 

APR is the effective rate you’ll be paying when everything, from the payments, time, and interest is considered. 

You’ll have to pay your factor, but you may have to cover origination fees as well. 

You’ll want to talk to your lender and learn more about their fees prior to accepting an advance. 

Calculating APR 

If you’re trying to determine whether a cash advance is a smart offer, you’ll want to calculate the APR. 

A finance advance can be a costly source of capital for small businesses. That’s why you’ll want to determine precisely how much you’ll be paying in interest. This will allow you to find your best options. 

After you’ve found out how large your advance will be and what your total repayment will be, you can determine your APR with an APR calculator. 

Payback periods and terms can influence your APR as well. 

Don’t use a calculator designed for a credit card or mortgage APR. You’ll want to find an MCA APR calculator.

Paying Back An MCA 

The amount of time it will take to pay off an MCA can vary. With that said, it’s typical for an advance to be paid off anywhere from three months to a year. 

You won’t have a precise timeframe for your repayments if you opt to pay off your advance with a percentage of your sales. After all, your revenue will change from one day to the next. 

If your sales go up, then it’s likely that you’ll be able to pay off your advance fairly quickly. 

However, if your credit card transaction revenues decrease, paying off your balance will take longer. 

Most of the time, you’ll want to pay off loans for your business as soon as you can. 

However, there isn’t really a benefit to paying off an MCA early. 

Your APR will actually decrease if you make your repayments over a longer period of time. This is because the effective cost of accessing merchant capital will gradually go down. 

Qualifying For An MCA 

The majority of businesses will qualify for an MCA, which is beneficial. 

With this kind of capital, neither down payments or collateral will be necessary. 

  1. Show Ability To Pay 

Many of the companies that offer merchant cash advances don’t bother to look at the profitability of a business. 

However, you will need to demonstrate that the card sales you generate are high enough to make monthly payments. As long as you can do that, you should be able to qualify with minimal problems. 

  1. Meeting Minimum Requirements 

Every lender offering merchant cash advances has its own set of requirements. With that said, there are often minimum requirements based on these criteria: 

  • Monthly revenue 
  • Months business has been in operation 
  • Sales from debit or credit cards

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