Merchant Cash Advance

Merchant Cash Advances

Merchant Cash Advances: Fast Funding or Financial Trap?

If your business needs a quick cash infusion but doesn’t qualify for traditional bank financing, a merchant cash advance (MCA) might seem like a lifeline. These financing tools are designed for speed and accessibility, especially for businesses with steady credit card sales and less-than-perfect credit. But while MCAs can help bridge short-term gaps, they come with serious costs and complexities.

What Is a Merchant Cash Advance?

An MCA isn’t technically a loan. It’s an upfront lump sum of cash provided in exchange for a portion of your future sales. Historically used by retail shops and restaurants, MCAs are now available to a wider range of businesses, even those that don’t rely heavily on card transactions.

To qualify, most providers require:

  • At least 3 months of consistent credit card sales
  • A minimum credit score (though lower scores may still be considered)
  • Basic documentation like bank statements and sales history

How Repayment Works

MCAs are repaid in one of two ways:

  1. Percentage of daily credit/debit card sales
    Payments fluctuate with your revenue, higher sales mean faster repayment.
  2. Fixed daily or weekly ACH withdrawals
    Payments are automatically debited from your bank account, regardless of sales volume.

Unlike traditional loans, MCAs don’t offer monthly payments or interest savings for early repayment. You’ll repay a fixed amount, plus fees, until the advance is paid in full.

Reasons to Consider an MCA

  • Fast access to cash: Funds can be available within days, with minimal paperwork.
  • No collateral required: MCAs are unsecured, so you won’t risk personal or business assets.
  • Flexible repayment: If tied to sales, payments adjust when revenue dips.
  • Business growth: Use funds to launch a new product, hire staff, or manage disruptions.

Reasons to Be Cautious

  • Sky-high APRs: Total borrowing costs can range from 40% to 350%, far higher than bank loans or business credit cards.
  • No early repayment benefit: You’ll pay the full fee regardless of how quickly you repay.
  • Limited regulation: MCAs aren’t governed by federal lending laws, making transparency a challenge.
  • Potential credit impact: Some providers perform hard credit checks, which can lower your score.
  • Debt cycle risk: Frequent repayments can strain cash flow, leading to repeated borrowing.
  • Confusing contracts: Terms like “factor rate,” “purchase price,” and “confession of judgment” can be hard to interpret, and may limit your legal rights.

Final Thought: Know What You’re Signing

Merchant cash advances can be a strategic tool, but only if you fully understand the costs, terms, and repayment structure. They’re best used as a short-term solution, not a long-term funding strategy.

Before committing, work with a trusted advisor or broker who can help you compare options, decode contract language, and ensure the financing aligns with your business goals.

Our role is to guide you toward the right fit and make sure you’re 100% clear on what you’re agreeing to. Call today to learn more or explore other options. 516.265.7446

WHEN THE BIG BANKS SAY NO, FITUFINANCE CAN HELP!