Merchant Cash Advance (MCA): how it works, costs, pros & cons
- An MCA is a purchase of future receivables with fixed total payback (factor rate × advance).
- Payments are typically daily/weekly via ACH or a % of card sales until paid in full.
- Effective cost can be high versus term loans/LOCs; compare using a normalized example.
- Best for speed and short‑term needs; less ideal for long horizons or thin margins.
- No hidden fees: we present total payback, cadence, and any prepayment policy in writing.
What is an MCA?
An MCA (merchant cash advance) is not a loan. It’s a sale of a portion of your future receivables. You receive an upfront amount (the advance) and agree to repay a fixed total amount (payback) via daily/weekly withdrawals or a percentage of your sales until the agreed payback is reached.
How costs are shown: factor rate vs an APR‑like view
Providers quote a factor rate (e.g., 1.35). Total payback = advance × factor rate. To compare across options, many owners convert to an APR‑like estimate by considering term and payment cadence.
- Advance: $50,000 · Factor: 1.35 → Total payback = $67,500
- Assume ~100 daily payments (≈ 20 weeks) → average outstanding ≈ half the advance
- Estimated effective cost ≈ $17,500 over ~5 months → normalize to an annualized view
Note: This is an illustrative shortcut; actual economics depend on payment schedule, prepayment policy, and any fees. We’ll present numbers in writing before you sign.
Pros and cons
- Fast turnarounds (often 24–72 hours after final approval)
- Flexible use of funds: inventory, repairs, marketing, payroll, deposits
- Repayment can flex with sales when collected as a % of card receipts
- Higher effective cost vs LOC/term loans
- Frequent payment cadence (daily/weekly) requires cash‑flow discipline
- May require a personal guarantee or UCC filing, depending on provider
Eligibility & documents
- Time in business: typically 6–12+ months
- Monthly revenue and deposit consistency
- Bank statements (3–6 months) and government ID
- EIN and basic business details; details on any current obligations
Alternatives to compare
Revolving access; lower effective cost if used responsibly.
Installment structure; predictable payments.
Advance on invoices; aligns with AR timing.
Side‑by‑side comparison
FAQs
We start with a soft pull where possible. If a hard pull is needed, we’ll ask first.
No. All costs are disclosed in writing before you sign.
We review balances and cadence to see if options exist, including possible consolidation.
Some providers offer early‑pay discounts; if available, we’ll highlight this in your offer.
Often 24–72 hours after final approval and document receipt.
3–6 months of statements and ID to start; others vary by provider.
Cost examples (more scenarios)
- Advance: $75,000 · Factor: 1.30 → Total payback $97,500
- Assume 26 weekly payments (~6 months)
- Back‑of‑napkin normalization: average outstanding ≈ half the advance (≈ $37.5k)
- Estimated financing cost ≈ $22,500 over ~6 months → APR‑like view ≈ (22,500 ÷ 37,500) × (12 ÷ 6) ≈ 120%
Illustrative only. Actual economics depend on the exact schedule, any fees, and prepayment policy.
- Advance: $30,000 · Factor: 1.45 → Total payback $43,500
- Assume ~120 daily payments (~24 weeks)
- Average outstanding ≈ half the advance (≈ $15k)
- Estimated financing cost ≈ $13,500 over ~5.5 months → APR‑like view ≈ (13,500 ÷ 15,000) × (12 ÷ 5.5) ≈ 196%
Illustrative only. Use written offer details for precise comparisons.
Why this method? MCAs repay principal quickly via frequent debits, so the average balance carried is far below the original advance. A simple way to compare options is to estimate cost against the average outstanding over the period. Our offers show total payback, cadence, and any early‑pay policy in writing.
QuickWave Funding is a broker/consultant, not a lender. MCAs are purchases of future receivables, not loans. Terms and eligibility vary by provider. We present total payback and payment cadence in writing with no hidden fees.
Sources & further reading
- California DFPI — Commercial Financing Disclosures (SB 1235)
- New York DFS — Commercial Financing Disclosure Regulations (23 NYCRR 600)
- FTC — Enforcement action related to merchant cash advances
- Federal Reserve — Small Business Credit Survey (2025)
- NerdWallet — Factor rate overview (context on comparing to APR)
We include third‑party links for context; verify details with providers and current regulations in your state. Our offers always present total payback and payment cadence in writing.
See how MCA, LOC, and short‑term loans stack up by cost, cadence, and flexibility.
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