When a slow month, a broken oven or a big order catches your business short on cash, a bank loan can take weeks you don't have. A merchant cash advance (MCA) is one of the fastest ways to get working capital. It is also one of the most misunderstood. Here's how an MCA works, what it really costs, and who qualifies, so you can decide with clear eyes.
What is a merchant cash advance?
A merchant cash advance is not a traditional loan. A funder gives your business a lump sum today and, in return, buys a portion of your future sales. You pay it back from the revenue your business brings in, until the agreed total has been repaid.
Because the funder is buying future receivables rather than lending against collateral, MCAs are judged mostly on your sales history. That's why they are often available to businesses that a bank would turn down: newer companies, owners with bruised credit, or industries banks tend to avoid.
How an MCA works, step by step
- You apply. Most funders ask for a short application and your last few months of business bank statements.
- The funder reviews your deposits. They look at how much comes into your account each month, how steady it is, and whether you already have other advances.
- You get an offer. The offer lists the amount you'll receive, the total you'll pay back, and how payments are collected.
- You're funded. After you sign and the file is verified, the money is deposited, often within a day or two and sometimes the same day.
- You repay from sales. Payments are taken automatically, either as a set percentage of your sales or as a fixed daily or weekly debit from your bank account.
What does a merchant cash advance cost?
MCAs are priced with a factor rate instead of an interest rate. The factor rate is a number you multiply by the amount funded to get the total payback.
Here's a simple example to show the math (it is not a quote): if you receive $50,000 at a factor rate of 1.30, you pay back $65,000 in total. The $15,000 difference is the cost of the advance. That cost is set the day you sign; it doesn't grow over time the way interest on a credit card does.
Two things affect how expensive an MCA feels:
- How fast you repay. The same $15,000 cost repaid over six months is a much higher effective annual cost than if it were repaid over eighteen months. Ask how long repayment is expected to take.
- Fees. Ask whether there are origination, underwriting or other fees, and whether they come out of the amount you receive.
MCAs generally cost more than bank loans or lines of credit. You are paying for speed, easier approval and payments tied to your sales. Several states, including New York and California, now require funders to give you a written disclosure of the total cost. Wherever you are, read the full payback amount before you sign.
Who qualifies for a merchant cash advance?
Every funder sets its own rules, but most look at:
- Time in business. At Big Ben Consultants, most programs need at least 6 months of operating history.
- Monthly revenue. We look for at least $20,000 a month in deposits.
- Bank statements. Your last 3 months show the funder how steady your revenue is.
- Existing advances. If you already have one or more MCAs, a new funder will factor in those payments.
Credit still matters, but it usually isn't the deciding factor. Strong, consistent deposits carry more weight.
When an MCA makes sense, and when it doesn't
An MCA can be a smart move when speed matters and the money will pay for itself: buying inventory at a discount, covering payroll while a big customer pays late, fixing equipment that stops you from earning, or taking on a job you'd otherwise turn down.
It's usually not the right tool for long-term projects that take years to pay off, or for covering a business that is losing money every month. If you qualify for a line of credit or term loan, those are often cheaper, and a good advisor will tell you so.
Questions to ask before you sign
- What is the total amount I will pay back?
- How much will each payment be, and how often is it taken?
- How long should repayment take at my current sales?
- Are there any fees taken out of my funding?
- Is there a discount if I pay it off early?
And be wary of anyone who promises a line of credit later if you take a cash advance now. That's a common scam.
Get a merchant cash advance with Big Ben Consultants
Big Ben Consultants helps small businesses in all 50 states get funding from $10K to $1M, with decisions as fast as the same day. Your dedicated funding advisor will show you every offer you qualify for, including the total payback, before you commit.
Ready to see what you qualify for? Apply online at bigbenconsultants.com, call (917) 808-9615, or email your last 3 months of business bank statements to Apply@bigbenfunding.com.
