Merchant Cash Advance Explained: How It Works and What It Costs

A merchant cash advance (MCA) gives your business a lump sum of cash in exchange for a share of your future sales. Because it's structured as a purchase of future receivables rather than a loan, approval tends to focus on your revenue more than your credit score, and funding can be quick.

How repayment works

Instead of a fixed monthly payment, the provider collects a set percentage of your sales (the "holdback") or a fixed daily or weekly amount from your bank account until the agreed total is paid. When sales are slow, percentage-based collections shrink with them.

How it's priced: factor rates

MCAs use a factor rate rather than an interest rate. If you receive $50,000 at a factor rate of 1.3, you repay $65,000 in total. Factor rates vary widely by provider and by business profile.

A factor rate is not an APR. Because MCAs are usually repaid over months rather than years, the equivalent annual cost can be much higher than the factor rate suggests. Always ask for the total repayment amount and the expected term, and compare offers on total cost.

Typical MCA requirements

Because repayment comes from your sales, MCA providers focus on revenue first. Requirements vary by provider, but most look at:

• Consistent monthly deposits or card sales in a business bank account
• Several months of business history, with recent bank statements to show it
• Existing advances: how many you already have and how much is still owed
• Credit: usually reviewed, but weighted less than revenue

Can you get an MCA with bad credit?

Often, yes. Since approval leans on revenue and bank activity, a lower credit score doesn't rule you out the way it might for a bank loan. The trade-off is cost: weaker profiles usually see higher factor rates and shorter terms, so compare the total repayment carefully.

MCA vs. a business loan

• Approval: an MCA weighs revenue most; a loan weighs credit, time in business and cash flow together
• Repayment: an MCA collects daily, weekly or as a share of sales; a loan usually has a fixed monthly payment
• Cost: an MCA is priced with a factor rate and is usually more expensive; a loan is priced with an interest rate and APR
• Speed: an MCA is typically quicker to arrange, while bank and SBA loans take longer

When an MCA can make sense

• You need funds quickly for a specific, revenue-generating purpose such as inventory or a large order
• Your sales are strong and steady, but your credit or time in business doesn't fit a bank loan
• You expect the use of funds to pay for itself within the advance's term

Watch-outs

• Stacking: taking several advances at once can squeeze cash flow quickly. Lenders will ask about existing advances.
• Early payoff: some agreements give no discount for paying early. Check before you sign.
• Daily debits: make sure your account can handle frequent withdrawals

Questions to ask before you sign

• What is the total amount I will repay, and over roughly how long?
• Is repayment a fixed daily or weekly amount, or a percentage of sales?
• Are there origination or other fees on top of the factor rate?
• Is there any discount if I pay the advance off early?
• What happens if my sales drop for a few weeks?

GoSwiftFund connects businesses with merchant cash advance partners for $10,000 to $250,000. If a lower-cost option such as a line of credit or SBA loan fits your profile better, we'll point you to it.