Merchant Cash Advance: Fast Funding, High Cost
A merchant cash advance (MCA) provides a lump sum in exchange for a percentage of future sales. It's one of the fastest but most expensive financing options available.
Michael Chen, CFA
Business Finance Expert
Updated February 2, 2026 • 9 min read
Important Considerations
MCAs are not loans—they're advances against future revenue. This means:
- No fixed monthly payment (varies with sales)
- Factor rates (not APR) make costs seem lower
- Effective APR can exceed 100-150%
- Best as a last resort or for very short-term needs
MCA at a Glance
24-48 Hours
Funding speed
$5K-$500K
Advance amounts
3-18 Months
Typical payback
1.1-1.5x
Factor rate
MCA Requirements
- Credit Card Sales: $5,000+/month
Consistent card processing required
- Time in Business: 4-6 months minimum
Some accept 3 months
- Credit Score: 500+ often accepted
Approval based on sales, not credit
- No Collateral: Unsecured advance
Based on future receivables
Understanding True MCA Costs
Example: $50,000 advance with 1.3 factor rate
| Amount Advanced | $50,000 |
| Factor Rate | 1.3x |
| Total Repayment | $65,000 |
| Cost of Financing | $15,000 |
| If repaid in 6 months | ~60% APR equivalent |
Daily holdback: 10-20% of credit card sales until fully repaid
When MCA Makes Sense
✅ Good Use Cases
- • Emergency equipment repair
- • Time-sensitive inventory purchase
- • Short-term seasonal cash needs
- • High-margin opportunity with quick ROI
❌ Poor Use Cases
- • Long-term financing needs
- • Covering ongoing cash flow gaps
- • Paying off other debt
- • Low-margin business operations