What Is a Merchant Cash Advance? A Complete Guide for Small Business Owners

If you've been researching small business funding, you've almost certainly encountered the term merchant cash advance — often alongside promises of same-day funding and "no credit check required." But what exactly is an MCA, how does it work, and is it the right tool for your business?

This guide covers everything: the mechanics, the true cost, how repayment works, and when an MCA makes financial sense versus when you should look at alternatives.

The Short Answer

A merchant cash advance (MCA) is a form of business funding where a funder provides a lump sum of capital in exchange for a percentage of your future sales. Unlike a traditional loan, an MCA is technically a purchase of future revenue — not debt in the traditional sense. This distinction affects how it's regulated and how repayment works.

MCAs are popular with small businesses because they're fast (often same-day), accessible (revenue matters more than credit score), and flexible (payments rise and fall with your sales).

How a Merchant Cash Advance Works: Step by Step

Step 1: Application

You apply with basic business information and 3–6 months of bank statements (and sometimes credit card processing statements). The entire application is online and takes roughly 5–10 minutes. No collateral, no financial audits, no lengthy paperwork.

Step 2: Cash Flow Review

The funder analyzes your daily deposits and average monthly revenue — not your credit score. They're evaluating whether your business generates consistent enough cash flow to sustain repayment. AI-native platforms like OneDay Capital match your profile against 50+ funders simultaneously to find the best terms.

Step 3: Offer and Terms

You receive an offer specifying the advance amount, the factor rate, and the holdback percentage. These are the three numbers that determine everything about the cost and duration of the advance.

Step 4: Funding

Accept the terms and funds are typically deposited within 24–48 hours — often the same business day.

Step 5: Repayment

Repayment begins immediately. A fixed percentage of each day's credit card sales or bank deposits is automatically remitted to the funder until the total repayment amount is satisfied.

MCA vs. Traditional Business Loan: Key Differences

What Is a Factor Rate? (And Why It Matters)

The factor rate is the single most important number in any MCA offer. It's a simple decimal multiplier applied to your advance amount to determine total repayment.

Formula: Advance Amount × Factor Rate = Total Repayment

• $30,000 × 1.15 = $34,500 total repayment ($4,500 cost)
• $50,000 × 1.25 = $62,500 total repayment ($12,500 cost)
• $100,000 × 1.40 = $140,000 total repayment ($40,000 cost)

Factor rates typically range from 1.10 to 1.50. A 1.10 rate on a fast-payoff MCA can be quite reasonable; a 1.50 rate on a slow payoff can equate to an APR well above 100%. Use our MCA factor rate calculator to model any scenario and see the approximate APR for your specific terms.

What Is Holdback? How Repayment Actually Works

The holdback (also called the retrieval rate) is the percentage of daily sales remitted to the funder. Most holdbacks range from 5% to 35% of daily card revenue or bank deposits.

If your restaurant does $5,000/day in card sales and your holdback is 15%, the funder automatically collects $750/day. If your sales drop to $2,000/day, they only collect $300. This self-adjusting nature is a key advantage of MCAs for businesses with variable revenue.

The payoff period depends entirely on your daily volume. Higher sales = faster payoff. Slower sales = longer payoff. There's no fixed term or maturity date.

MCA Pros and Cons

Advantages

• Speed: Same-day to 48-hour funding in most cases
• Accessibility: Revenue over credit score — most businesses with $10K+/month qualify
• Flexible payments: Repayment adjusts to actual sales volume
• No collateral: No need to pledge assets
• No fixed monthly payment: Reduces pressure during slow periods
• Unrestricted use: Use funds for any business purpose

Disadvantages

• High effective APR: Factor rates translate to high annualized costs
• Daily deductions: Cash flow is reduced every day
• No early payoff benefit: You pay the full factor rate regardless of payoff speed (with most MCAs)
• Stack risk: Multiple MCAs simultaneously can create cash flow problems
• Less regulated: Not subject to the same disclosure standards as traditional loans

When Does an MCA Make Sense?

An MCA is generally the right tool when:

• You need capital this week — not in 6 weeks
• Your revenue is strong but your credit score is low
• You have a specific, high-ROI use for the funds (buying inventory at a discount, capturing a contract, marketing with measurable returns)
• Your business generates consistent daily card or bank deposits
• You've been declined for bank loans or can't wait on SBA timelines

An MCA is probably not the right tool if you have strong credit and 2+ years in business — you'll likely qualify for lower-cost options like a business line of credit, term loan, or SBA loan.

How to Apply for a Merchant Cash Advance

1. Gather your last 3–6 months of bank statements. This is the primary document; most funders don't need tax returns for an MCA.
2. Apply through an AI-native platform like OneDay Capital to get matched with multiple funders in one application — rather than applying to each funder separately.
3. Review your offers carefully. Compare factor rates, holdback percentages, and estimated payoff periods. Use the MCA calculator to understand the true cost of each offer.
4. Accept terms and receive funds. Most funders can wire funds the same business day or the next morning.

OneDay Capital works with 50+ active MCA and revenue-based funders. Our AI platform matches your revenue and cash flow profile to funders most likely to approve you at competitive terms — without the need to fill out multiple applications.

Frequently Asked Questions