Merchant Cash Advance for Startups

What a merchant cash advance (MCA) actually is

A merchant cash advance isn’t a loan. It’s usually a purchase of future receivables: you receive a lump sum today and agree to remit a fixed total payback via a daily/weekly percentage of sales (the holdback). See our Merchant Cash Advance page for details.

Key pieces:

• Advance amount: funds you receive upfront.
  
  
• Factor rate: a multiplier (e.g., 1.30) applied to your advance to determine total payback.
  
  
• Holdback: a share of deposits (e.g., 8–15%) remitted until the fixed payback is met.
  
  
• Estimated term: not fixed—repayment speeds up or slows down with sales.
  
  

MCAs are popular with startups because they’re fast and documentation-light compared to bank loans. But they can be expensive versus amortizing products like a Working Capital Loan or Term Loan.

How an MCA works (simple walkthrough)

You accept a $60,000 advance with a 1.28 factor. Your total payback is $76,800.
If your holdback is 10% and you deposit $4,000 one day, $400 is remitted and $3,600 remains for operations. The faster you sell, the faster you finish the obligation.

What this means for startups: you’re trading speed and lenient underwriting for higher total cost and variable daily/weekly cash outflows.

The startup pros—and the real trade-offs

Why startups choose MCAs

• Speed: decisions/funding can be rapid when time matters.
  
  
• Sales-linked remittances: payments flex with revenue.
  
  
• Collateral-light: often no specific asset pledged (personal guarantees are still common).
  
  

What to watch

• Total cost: factor pricing can be materially higher than amortizing loans.
  
  
• Cash-flow drag: daily/weekly debits can bite during slow weeks.
  
  
• Stacking risk: adding a second/third MCA can quickly strain liquidity and hurt future approvals.
  
  
• Less runway for growth: heavy remittances can crowd out payroll, fuel, inventory, or marketing.
  
  

If predictability matters, compare Line of Credit or Working Capital Loan first.

MCA vs. smarter early-stage options (side-by-side)

Explore these options:
Working Capital Loan • Line of Credit • Invoice & Freight Factoring • Equipment Financing • Asset-Based Lending

If equipment is the constraint, finance the asset—not your sales

Many startups reach for an MCA to buy or fix equipment. Often, asset-backed financing is cheaper and more predictable:

• Buy and own with Equipment Loans.
  
  
• Keep payments lower and preserve upgrades with Equipment Leases.
  
  
• Unlock cash from gear you already own via Refinancing & Sale-Leaseback.
  
  

Mehmi also sells equipment directly—browse current inventory if a specific asset will unlock revenue.

Government-backed path for bankability

If you can wait slightly longer and qualify, the Canada Small Business Financing Program (CSBFP) can improve approval odds and terms for eligible purchases. For general borrowing, compare Secured vs Unsecured Loans and classic Term Loans.

Startup playbook: choosing the right tool (quick framework)

1. Goal & timing: Do you truly need funds in 24–72 hours? If yes, an MCA may be the necessary bridge; otherwise compare lower-cost options.
   
   
2. Cash-flow comfort: Model worst-week sales. Will daily/weekly remittances still leave room for payroll, fuel, and rent?
   
   
3. Asset leverage: If gear is the driver of revenue, finance the asset (loan/lease/sale-leaseback) instead of pledging future sales.
   
   
4. Receivables profile: If customers pay on terms, factoring often beats an MCA.
   
   
5. Refinance path: If you must take an MCA, plan to refinance into a Working Capital Loan or consolidate via Business Refinancing as soon as cash flow stabilizes.
   
   
6. Run the math: Use the Calculator to compare holdbacks vs. fixed payments.
   
   

Documentation checklist (startup-friendly)

• Government-issued ID and a void cheque
  
  
• Last 3–6 months of business bank statements (and/or card statements)
  
  
• Business details (legal name, ownership, time in business)
  
  
• Recent financials or projections if available
  For asset-backed options, add: equipment quote/specs or proof of ownership (for sale-leaseback).
  
  

Case study: “Bridge now, lower cost later” (Ontario startup caterer)

A Toronto caterer, 11 months old, landed a large festival contract but needed a commercial range repair and inventory fast. Bank timing was too slow. We placed a small MCA to get ovens back online in days.
Within eight weeks—after the event cash cycle—the client transitioned into a Line of Credit plus a modest Working Capital Loan, cutting effective cost and smoothing cash flow. Six months later, they financed a combi oven via Equipment Lease to support recurring corporate orders.

FAQ: Merchant cash advance for startups (Canada)

Is an MCA a loan?
No. It’s typically a purchase of future receivables with a fixed total payback collected from a share of your deposits. See MCA overview.

How fast can a startup get funded?
MCAs can be very quick. If you can wait longer, compare a Working Capital Loan or Line of Credit for lower cost.

What’s the “factor rate” vs APR?
Factor rates create a fixed payback (e.g., 1.28×). It’s not an APR and can lead to higher effective costs—especially if repaid quickly. Model alternatives with the Calculator.

Can I stack more than one MCA?
You can, but stacking increases cash-flow pressure and can hurt future financing. Consider Business Refinancing instead.

What if I’m buying or repairing equipment?
Asset-backed options are usually better value: Equipment Loans, Leases, or Truck Repair Financing.

Do Canadian startups qualify without years of history?
Often yes—especially with collateral, a down payment, or programs like CSBFP. If you invoice customers, explore Invoice & Freight Factoring.

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When you’re ready, run your numbers with the calculator, then contact our team for a tailored plan that compares MCA versus lower-cost structures. Feel free to contact our credit analysts.