How Merchant Cash Advances Work

What is a Merchant Cash Advance?

A merchant cash advance (MCA) is not a traditional loan. It’s typically a purchase of future receivables: a funder advances you a lump sum today and collects a percentage of your daily sales (the “holdback”) until a fixed total payback is reached. That payback is set by a factor rate (e.g., 1.25 means repay $125,000 for a $100,000 advance).
Explore alternatives on our Business Loans hub or the dedicated Merchant Cash Advance page.

Key Terms You’ll See on an MCA

• Advance Amount: The lump sum you receive.
  
  
• Factor Rate (not APR): Multiplier applied to the advance to determine total payback.
  
  
• Holdback (Retrieval Rate): % of daily/weekly sales remitted (often via split deposits or daily ACH).
  
  
• Estimated Term: Not fixed—your sales velocity drives how fast you finish paying.
  
  
• Remittance Method: Daily card split or daily/weekly debit from your account.
  
  
• Personal Guarantee / Security: Many MCAs still require a PG and covenants.
  
  

If you prefer predictable, amortizing payments, compare Working Capital Loans, a Business Line of Credit, or Term Loans.

How Repayment Actually Works (A Quick Example)

• You receive $100,000 at a 1.30 factor → total payback = $130,000.
  
  
• Your holdback is 10% of daily deposits.
  
  
• If you deposit $5,000 today, the funder takes $500; you keep $4,500.
  
  
• On slower days, you remit less; on busier days, more. The estimated payoff period changes with sales.
  
  

Because factor rates aren’t APRs, the effective cost can be high, especially if you repay quickly. If cost matters more than speed, compare Secured Loans, Unsecured Loans, or Asset-Based Lending.

Why Businesses Choose MCAs

• Speed & Simplicity: Funding can be fast with light documentation.
  
  
• Revenue-Aligned Remittance: Payments rise and fall with sales.
  
  
• Collateral-Light: Typically no specific equipment pledged (PGs are common).
  
  
• Use of Funds: Inventory, repairs, marketing, payroll, seasonal ramps.
  
  

If the need is urgent (e.g., oven failure, truck engine repair), MCAs are popular. For truck repairs, also look at Truck Repair Financing.

The Major Drawbacks (Read Before You Sign)

• High Total Cost: Factor-based pricing often exceeds comparable loan APRs.
  
  
• Daily/Weekly Debits: Cash-flow drag, especially in slower months.
  
  
• No Amortization: Balance doesn’t decline via interest+principal; you owe the fixed total payback.
  
  
• Stacking Risks: Taking multiple MCAs can spiral quickly.
  
  
• Constraints on Future Financing: Heavy daily remittances can deter banks and lower-cost lenders later.
  
  

If you invoice customers, Invoice & Freight Factoring may be cheaper because the receivable—rather than daily sales—drives repayment.

MCA vs. Smarter Alternatives (At-a-Glance)

Compare products:
Working Capital Loan • Line of Credit • Invoice & Freight Factoring • Asset-Based Lending • Equipment Loans • Equipment Leases

How to Decide if an MCA Fits (Practical Framework)

• Goal & Timing: Is this an emergency expense you must cover in 24–72 hours?
  
  
• Cash-Flow Comfort: After the holdback, will you still meet payroll, fuel, and rent?
  
  
• Cheaper Collateralized Options: Could a secured loan or equipment financing solve the same problem at lower cost?
  
  
• Receivables-Driven Revenues: If most revenue is on terms, factoring often beats an MCA.
  
  
• Short Duration Plan: Use MCAs as a bridge, then refinance to reduce cost via Business Refinancing.
  
  

Run loan/lease scenarios with our Calculator to visualize predictable payments vs. a variable MCA holdback.

Case Study: Repair Now, Refinance Later

A Toronto-based hotshot trucking owner-operator faced a transmission failure before peak season. Bank timing didn’t work; the shop needed funds immediately. They used a small MCA to release the truck from the shop and resume routes. Within 90 days, with steady receivables, they refinanced the balance into a Working Capital Loan and added Invoice/Freight Factoring to smooth cash flow. Costs dropped, daily stress eased, and the rig stayed on the road.
Are you looking for a truck? Look at our used inventory.

Documentation You’ll Likely Need

• Government-issued ID and void cheque
  
  
• 3–6 months of business bank statements and/or card statements
  
  
• Most recent tax filing or financials (if available)
  
  
• Business details (legal name, ownership, years in operation)
  
  

If you’re buying equipment instead, approvals can lean more on the asset; see Equipment Loans and Equipment Leases.

FAQs: Merchant Cash Advance (Canada)

Is an MCA a loan?
No. It’s typically a purchase of future receivables with a fixed total payback based on a factor rate, not an interest-bearing amortizing loan.

How fast can I get funding?
Often faster than loans. If you can wait a bit longer, Lines of Credit or Working Capital Loans may cut your cost.

What’s the true cost vs a loan?
MCAs use factor rates, so the implied APR can be high—especially if you repay quickly. Model amortizing options with our Calculator.

Can I take multiple MCAs?
You can, but stacking often strains cash flow. Consider Business Refinancing to consolidate and lower cost.

Will an MCA hurt my chance at a bank loan later?
Heavy daily debits can make future underwriting harder. If bankable soon, explore CSBFP or a Term Loan.

When is MCA the right tool?
Emergency repairs, short sales dips, or time-sensitive opportunities when other options can’t meet the deadline—and you’ve planned a refinance path.

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Next Step

If you’re weighing an MCA against lower-cost options, we’ll model both and show the cash-flow impact. Compare structures on the Merchant Cash Advance page, test predictable payments with the Calculator, or contact our team for a tailored plan. Feel free to contact our credit analysts.