Definition
A merchant cash advance (MCA) is a type of business financing in which a company receives a lump sum of cash in exchange for a percentage of its future daily credit and debit card sales, plus a fee. Repayment happens automatically — a fixed percentage of daily sales is deducted until the full amount is repaid.
Merchant cash advances are not technically loans. They are legally structured as a purchase of future receivables — the MCA provider buys a portion of your future sales at a discount today. This distinction matters because MCAs are not subject to the same usury laws and interest rate caps that govern traditional loans.
According to the Federal Reserve's 2024 Small Business Credit Survey, 43% of small businesses that applied for financing were denied at least a portion of their request. For these businesses — and those who need capital faster than banks can move — MCAs have become one of the most widely used alternative financing tools in the US.
How Does a Merchant Cash Advance Work?
Here's what happens from application to funding:
- You apply — typically a 2-minute online application. Most MCA providers ask for 3–6 months of business bank statements and basic business information. No hard credit pull required to pre-qualify.
- Lender reviews your revenue — MCA providers evaluate your average monthly revenue, your daily card sales volume, and how long you've been in business. Credit score is a secondary factor.
- You receive an offer — the offer specifies the advance amount, factor rate, and holdback (retrieval rate). You review and sign a merchant agreement.
- Funds are deposited — typically within 24 hours of approval, sometimes the same day.
- Automatic repayment begins — each day, a fixed percentage of your card sales is automatically remitted to the MCA provider. On slow days you pay less; on busy days you pay more. Repayment continues until the full amount owed is paid.
24h
Average funding time
Same-day common
500+
Min. credit score
Revenue matters more
$5K–$5M
Typical advance range
Via The Broker Shop
What Does an MCA Cost? (Factor Rates Explained)
Instead of an interest rate, MCAs use a factor rate — a simple decimal multiplier that determines your total repayment amount.
How to Calculate Your MCA Cost
Formula: Advance Amount × Factor Rate = Total Repayment
Example Calculation
Advance amount: $50,000
Factor rate: 1.30
Total repayment: $50,000 × 1.30 = $65,000
Cost of the advance: $15,000
If your daily holdback is 15% and you average $5,000/day in card sales, you'd repay ~$750/day and finish repayment in ~87 business days.
Factor rates typically range from 1.10 to 1.50 depending on your business revenue, time in business, industry risk, and the lender. Working with a broker like The Broker Shop means 50+ lenders compete for your deal — driving your factor rate lower.
Who Qualifies for a Merchant Cash Advance?
MCA requirements are significantly more flexible than traditional bank loans. Most lenders in our network require:
| Requirement | Typical MCA Standard | Traditional Bank Loan |
|---|
| Time in business | 6+ months | 2+ years |
| Monthly revenue | $10,000+ | $50,000+ |
| Credit score | 500+ (flexible) | 680+ (strict) |
| Collateral | Not required | Often required |
| Tax returns | Usually not required | 2–3 years required |
| Funding speed | 24 hours | 2–8 weeks |
Merchant Cash Advance: Pros and Cons
✅ Pros
✓Fast approval — often same day
✓No collateral required
✓Bad credit accepted (500+ score)
✓Flexible repayment tied to sales
✓No fixed monthly payment
✓No personal guarantee in most cases
❌ Cons
✗Higher cost than traditional loans
✗Daily repayment reduces cash flow
✗No benefit to early payoff (usually)
✗Not ideal for long-term financing
✗Stacking MCAs can lead to problems
Merchant Cash Advance vs. Business Loan
| Factor | Merchant Cash Advance | Business Term Loan |
|---|
| Structure | Purchase of future receivables | Traditional loan with fixed payments |
| Cost | Factor rate (1.1–1.5×) | Interest rate (6–35% APR) |
| Repayment | % of daily sales (flexible) | Fixed weekly/monthly payments |
| Speed | 24 hours | 1–4 weeks |
| Credit requirement | 500+ score | 600–680+ score |
| Best for | Short-term needs, high card volume | Planned investments, lower cost |
Not sure which is right for you? Read our full MCA vs. Business Loan comparison →
Frequently Asked Questions
Is a merchant cash advance a loan?
No. An MCA is legally structured as a purchase of future receivables — not a loan. The MCA provider buys a portion of your future sales at a discount. This means MCAs are not governed by the same interest rate regulations as loans.
Will an MCA hurt my credit score?
Pre-qualifying for an MCA uses a soft credit pull only — zero impact on your credit score. A hard pull only happens if you choose to move forward with a specific offer, and reputable providers will notify you before this happens.
How much can I get with a merchant cash advance?
Most businesses qualify for 50%–150% of their average monthly revenue. If your business brings in $40,000/month, you may qualify for $20,000–$60,000. The Broker Shop shops 50+ lenders to find your maximum approval amount.
What industries qualify for MCAs?
Most industries qualify — restaurants, retail, contractors, trucking, salons, healthcare, e-commerce, and more. MCAs are especially common in businesses with high card sales volume. See our
full industries list.
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