Merchant Cash Advance (MCA)
A form of business finance where a lump sum is advanced against future card sales, repaid as a fixed percentage of daily card takings.
A merchant cash advance (MCA) provides a lump sum to a business in exchange for an agreed portion of its future card takings. Unlike a business loan, there are no fixed monthly payments and no interest rate in the traditional sense. Instead, a factor rate is applied to determine the total repayment. The advance is repaid through an automatic daily holdback of card sales.
MCAs are popular with retail and hospitality businesses that process significant card volumes, because repayment naturally slows during quiet periods and accelerates in busy periods. They are also accessible to businesses with shorter trading histories (typically three to six months of card processing is sufficient).
The main drawback of MCAs is cost. When the factor rate is converted to an APR, effective rates are typically 30-100% APR - significantly higher than most business loans. They should generally be considered as a last resort or for very specific cash flow situations rather than a primary funding strategy.
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