A merchant cash advance, usually called an MCA, is a form of business funding based heavily on the revenue of the business.
It is different from a traditional bank loan.
Instead of looking mainly at tax returns and strong personal credit, many MCA companies focus more on things like:
- Monthly business revenue
- Bank deposits
- Time in business
- Existing business debt
- Average daily balances
- Negative balance days
- Overall cash flow
That can make an MCA an option for businesses that need money quickly or may not qualify for traditional bank financing.
It can also be expensive.
That is why I do not think an MCA is automatically good or bad.
It depends on the business, why the money is needed, the payment, and whether the financing actually improves the situation.
How Does a Merchant Cash Advance Work?
With a merchant cash advance, the funding company provides money to the business upfront.
The business then repays the advance through scheduled withdrawals, usually daily or weekly.
Some programs use a fixed daily or weekly payment.
Others may be structured around future business receivables.
The important questions are pretty simple:
- How much money is the business receiving?
- How much has to be repaid?
- How often are the payments?
- Can the business comfortably handle the payment?
That is what I care about when reviewing an MCA.
Is a Merchant Cash Advance a Loan?
Most merchant cash advances are structured differently from a traditional business loan.
The funding company is generally purchasing a portion of future business receivables.
From the business owner’s point of view, though, the bigger issue is usually cash flow.
It does not really matter what the product is called if the payment is too large for the business to handle.
The structure needs to make sense.
Why Do Businesses Use MCAs?
One of the main reasons is speed.
Businesses may use an MCA for:
- Payroll
- Inventory
- Marketing
- Equipment repairs
- Materials
- Expansion
- Seasonal expenses
- Emergency expenses
- New contracts
- General working capital
A traditional bank loan may take longer and require more documentation.
An MCA may be easier to qualify for when the business has strong revenue.
What Do MCA Companies Look At?
Every funding company is different.
Some care more about credit.
Others care more about bank activity and revenue.
They may review:
- Monthly deposits
- Average daily balances
- Number of deposits
- NSF activity
- Negative balance days
- Existing MCA payments
- Time in business
- Industry
- Personal credit
- Overall business cash flow
That is why I do not like making a decision based only on a credit score.
Two business owners can have the same credit score and completely different funding options.
How Much Revenue Do You Need for an MCA?
There is no single number that applies to every program.
Some funding companies work with smaller businesses.
Others are looking for significantly higher monthly deposits.
The amount of revenue also affects how much funding may be available.
A company depositing $25,000 per month is going to be looked at differently than a company depositing $250,000 per month.
The lender also needs to look at how much money is already leaving the account for existing debt.
Can You Get an MCA With Bad Credit?
Possibly.
Bad credit does not automatically eliminate every MCA option.
Some funding companies may consider borrowers with credit scores in the 500s if the business itself is strong enough.
They may look at:
- Monthly revenue
- Deposit consistency
- Time in business
- Existing debt
- Bank balances
- Recent payment history
Credit still matters.
It just may not be the only thing that matters.
How Long Do You Need to Be in Business?
That depends on the funding company.
Some programs may consider newer businesses with only several months in operation.
Others may want a year or more.
More time in business usually helps because the lender can see a longer history of revenue and bank activity.
How Much MCA Funding Can You Get?
The amount depends on the business.
The lender may consider:
- Monthly deposits
- Time in business
- Credit
- Existing obligations
- Industry
- Current MCA balances
- Bank activity
- Overall cash flow
I do not like promising a certain funding amount before seeing the numbers.
The business may qualify for more or less than expected depending on the entire file.
How Fast Can an MCA Fund?
Speed is one of the reasons businesses use MCAs.
Straightforward transactions can sometimes move quickly when the documentation is complete.
A typical starting package may include:
- Business application
- Recent business bank statements
- Driver’s license
- Voided business check
- Basic business information
Larger or more complicated deals may require additional documentation.
Daily Payment vs Weekly Payment MCA
Many MCAs use daily withdrawals.
Others use weekly payments.
A daily payment may work fine for a business with consistent daily revenue.
A weekly payment may be easier for some businesses to manage.
But the payment frequency alone does not tell you whether the deal is good.
You still need to look at the total repayment and how the payment affects cash flow.
What Is MCA Stacking?
MCA stacking happens when a business takes multiple advances at the same time.
This is where a lot of businesses get into trouble.
It may start with one advance.
Then another need comes up.
The business takes a second.
Then maybe a third.
Eventually there may be several daily or weekly payments coming out of the same bank account.
The business may still have good revenue but constantly feel short on cash.
Why Multiple MCA Positions Can Become a Problem
The biggest issue is usually the combined payment.
For example, a business might generate $100,000 per month.
That sounds strong.
But if several funding companies are pulling a large amount from the account every day, the business may have trouble paying:
- Payroll
- Vendors
- Rent
- Taxes
- Inventory
- Normal operating expenses
At that point, another advance may make the problem worse.
That is when I would rather look at the entire situation before adding more debt.
MCA Consolidation
If a business already has several merchant cash advances, MCA consolidation may be worth looking at.
Depending on the program, consolidation may help:
- Pay off existing positions
- Restructure payments
- Reduce daily or weekly cash-flow pressure
- Improve overall cash flow
- Provide additional working capital in some situations
Not every business qualifies.
But if multiple payments are creating a cash-flow problem, consolidation may be a better conversation than simply taking another position.
[Learn More About MCA Consolidation]
What Is a Reverse Consolidation?
A reverse consolidation is different from a traditional consolidation.
Instead of paying off all of the existing advances immediately, the new funding company may provide money to help cover part of the current daily or weekly payment burden.
The existing advances are still being paid.
The idea is to give the business more breathing room while those balances are being reduced.
It is not the right solution for every business, but it can help in certain situations.
Can Startups Get an MCA?
Possibly.
Some funding companies work with newer businesses.
The lender may focus heavily on:
- Current revenue
- Bank activity
- Industry
- Personal credit
- Time in business
A startup generating strong monthly revenue may have more options than one with very little bank activity.
What Industries Can Qualify?
Many types of businesses may qualify for MCA funding.
That can include:
- Construction
- Trucking
- Restaurants
- Retail
- Medical
- Dental
- Automotive
- Manufacturing
- Landscaping
- Home services
- Professional services
- E-commerce
- And many others
Some funding companies restrict certain industries.
That is another reason lender selection matters.
MCA Funding for Construction Companies
Construction companies often have legitimate working capital needs.
A contractor may need money for:
- Materials
- Payroll
- Subcontractors
- Fuel
- Equipment repairs
- Insurance
The problem is that expenses often have to be paid before the customer pays the contractor.
An MCA can sometimes help bridge that gap.
But the payment still needs to make sense.
MCA Funding for Trucking Companies
Trucking companies can also have cash-flow issues.
Fuel, repairs, insurance, driver payroll, and delayed customer payments can create short-term pressure.
An MCA may provide quick working capital.
But trucking businesses can also get overloaded if they stack multiple advances.
If there are already several positions, I would want to review the total payment burden first.
When Does an MCA Make Sense?
An MCA may make sense when:
- The business needs capital quickly
- Revenue is strong
- Traditional financing is not available
- The payment fits comfortably within cash flow
- The use of funds should generate a return
- The business understands the full repayment obligation
For example, using short-term capital to purchase inventory that will turn quickly may make more sense than using it to cover ongoing losses.
When Does an MCA Not Make Sense?
An MCA may not make sense when:
- The business is already overloaded with debt
- The payment will create a cash-flow problem
- The company is consistently losing money
- New advances are being used to pay old advances
- There is no clear use for the money
- A better financing option is available
Sometimes the right answer is not more money.
That is important to recognize.
MCA vs Working Capital Loan
A traditional working capital loan may offer a longer term or a different payment structure.
But qualification may be stricter.
An MCA may be easier to obtain for a business with strong revenue but weaker credit or limited traditional financing options.
The right choice depends on the business.
[Learn More About Working Capital]
MCA vs Business Line of Credit
A business line of credit can be a better option for some stronger borrowers.
The business can usually draw money when needed and repay it over time.
However, lines of credit often have stricter qualification requirements.
If the business qualifies for a good line of credit, I would usually want to compare that option before jumping into an MCA.
MCA vs Equipment Financing
If the main purpose of the money is to buy equipment, I would usually look at equipment financing or equipment leasing first.
Why?
Because financing the equipment directly may provide a better structure than using short-term working capital to purchase a long-term asset.
An MCA may be better suited for things like:
- Payroll
- Inventory
- Marketing
- Materials
- Short-term operating expenses
[Learn More About Equipment Financing]
Be Careful With Multiple Positions
This is probably the biggest warning I would give a business owner considering an MCA.
One payment may be manageable.
Several payments can become a problem very quickly.
Before taking another advance, I would look at:
- Monthly revenue
- Total daily or weekly payments
- Remaining balances
- Bank balances
- Existing debt
- Overall cash flow
Sometimes another advance makes sense.
Sometimes consolidation makes more sense.
Sometimes waiting is the better decision.
Why Work With a Broker?
There are a lot of MCA funding companies.
They do not all have the same guidelines.
One may like construction.
Another may like trucking.
One may work with weaker credit.
Another may want cleaner bank statements.
One may allow multiple existing positions.
Another may not.
My job is to look at the transaction and determine which funding sources may actually fit.
The goal is not to send the application everywhere.
The goal is to find the most realistic options for the business.
What Information Do I Need to Get Started?
You do not need a full package just to see whether an MCA may be worth looking at.
A good starting point is:
- Monthly revenue
- Time in business
- Industry
- State
- Approximate credit
- Amount requested
- Intended use of funds
- Number of existing MCA positions
- Approximate current payments
From there, I can get a better idea of which direction makes sense.
Need Business Funding?
If your business needs working capital and a traditional bank loan is not a good fit, a merchant cash advance may be worth considering.
The important thing is making sure the payment works with the business.
Tell me what you need, why you need it, and what the business looks like.
From there, I can help determine which funding options may make sense.
Call or text Shawn at (714) 271-8524 or email Info@TheBroker.Finance to discuss your business funding options.
Learn More About Working Capital
Learn More About MCA Consolidation
Explore Business Financing Options
All funding is subject to lender or funding-company approval, underwriting, business performance, documentation, program availability, and other requirements. Merchant cash advances can be expensive and should be reviewed carefully before accepting an offer.