What is a Merchant Cash Advance?

Photo by Giorgio Trovato on Unsplash

The Merchant Cash Advance industry is no longer new. Since its beginnings in the early 2000s (possibly earlier, there is no official timeline for the industry), Merchant Cash Advance providers have offered fast approvals, unique repayment plans, and funding within days to business owners that otherwise may have to do without. This unique tool has helped many entrepreneurs get through tough times, emergency situations, and periods of expansion.

Over the last few years, I’ve been involved in just about every part of small business consulting and Merchant Cash Advances have been a huge tool that I’ve helped business owners understand and, when necessary, use properly.

Below, I’ll cover the basic things that I think you should know when considering a Merchant Cash Advance for your business.


A loan is when money is exchanged from one party to another with an agreement to repay the principal balance plus interest.

With a Merchant Cash Advance, you’re not getting a loan. Instead, you’re receiving a lump sum payment for selling a percentage of your future receivables.

Sound confusing? Don’t worry, that was by design. Merchant Cash Advance companies use specific terminology to avoid state usury laws. This allows for higher flexibility in qualifications but paves the way for higher rates, shorter repayment terms, and tons of confusion.


Merchant Cash Advances typically use a factor rate instead of an interest rate to determine payback amount and payments.

Factor rates are based on a number of risk factors including time in business, the credit history of the business/owner, industry, location, previous payment history, monthly revenue/daily averages, and more. They range from 1.1–2.0 and are even higher in some high-risk instances.

Using a factor rate to determine your payback amount is as easy as multiplying it to your funding amount. For example:

$10,000 funded x 1.20 factor rate = $12,000 total repayment amount (+ fees)
$10,000 funded x 1.49 factor rate = $14,900 total repayment amount (+ fees)


The terms for Merchant Cash Advances are much shorter than traditional bank loans.

A business loan from your local lender may net you a 4–5 year repayment term but you’ll likely see less than 18-months (a few companies have 24-month terms) on your Merchant Cash Advance contract.

On one hand, you’re out of debt and able to borrow again much quicker (typically, new funds are available around 50% repaid) but on the other hand, the shorter term means higher payments and a higher converted interest rate.


Making small, broken-up, daily payments may seem like a pain to someone in the construction industry, but for some, like restaurants and retail shops, this method is much better than a large, monthly payment.

Most Merchant Cash Advance funders exclusively offer daily payment options but some offer weekly to certain industries or business owners with good payment history.

If you feel that a Merchant Cash Advance may work well for your business, or just want to learn more, let’s chat about it.

Visit my site at www.benmcgary.com to set up a free call where we’ll discuss your business needs and goals.

If Merchant Cash Advance isn’t right for you, we’ll search for another program that would be a better fit…together.

Ben McGary

As a bonus, consider these questions before hitting submit on that application:

Who gave you the idea of taking a Merchant Cash Advance?
While they are a great tool for some, they are definitely not perfect for all businesses. Although the broker, funding specialist, or consultant on the phone said an MCA was the best idea for now, can your business really support a daily (or weekly) payment?

What are you going to spend the money on?
This money isn’t cheap, so you need to turn it into profit as quickly as possible. You definitely don’t let it sit in your bank account.

Knowing exactly what you’ll spend the money on and what return you’re expecting are absolute keys

Where are the funds coming from?
Is this a broker, a syndicate, or a funder? The differences may not be easy to spot for most but knowing the difference could save you hundreds, even thousands, of dollars in fees on each deal.



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Ben McGary

Ben McGary

Writing about things that matter to me when they matter to me and hoping that they’ll matter to you.