Top Merchant Cash Advance FAQ Answered

Many small businesses seek merchant cash advances (MCAs) for fast funding. Unlike conventional loans, MCAs provide an upfront lump sum that is repaid through a fixed percentage of daily sales. This repayment model is particularly attractive to businesses with variable income streams.

While an MCA offers fast funding, it comes with high costs and daily repayment deductions. Business owners struggling with multiple advances may need MCA debt relief to manage their financial obligations. Understanding the common questions about MCAs helps businesses make informed decisions.

Is a Merchant Cash Advance a Loan?

No, an MCA is not a traditional loan. A lender does not lend money based on creditworthiness or collateral. Instead, it purchases a percentage of future sales at a discount.

Repayment terms differ from standard loans. Instead of monthly fixed payments, MCA providers deduct a percentage of daily or weekly sales until the full amount is repaid. This means businesses pay more when sales are high and less when revenue drops.

How Much Can a Business Receive Through an MCA?

The amount depends on a business’s sales volume. Lenders typically approve advances ranging from a few thousand dollars to several hundred thousand. The higher the revenue, the larger the potential advance.

Businesses should evaluate how much they need rather than accept the highest offer. Taking excessive funding can lead to repayment struggles, requiring solutions like MCA debt consolidation to merge multiple advances into one manageable payment.

How Is an MCA Repaid?

Repayment is made through a holdback percentage, which is a portion of daily or weekly sales deducted automatically. The common repayment methods include:

• Split withholding: The credit card processor divides sales between the business and the MCA provider.
• ACH withdrawal: The provider deducts a fixed amount from the business’s bank account.
• Lockbox withholding: Payments go into a designated bank account, where the MCA provider takes its share before the business receives the remaining funds.

Since repayment depends on sales, businesses experiencing slow periods may struggle to meet obligations. Those overwhelmed by multiple advances may explore MCA debt refinancing to reduce high repayment burdens.

Do MCA Providers Charge Interest?

MCA providers do not use traditional interest rates. Instead, they charge a factor rate, typically between 1.2 and 1.5.

For example, an MCA of $25,000 with a 1.5 factor rate would require repayment of $37,500 ($25,000 x 1.5). This fee structure makes MCAs one of the most expensive financing options.

Businesses paying excessive amounts in fees may benefit from restructuring their repayment plans through MCA debt restructuring to create a more sustainable financial strategy.

Can a Business Take Multiple MCAs?

Some businesses stack MCAs, taking new advances before paying off existing ones. While this provides short-term relief, it increases the financial burden due to multiple deductions from daily sales.

Lenders may approve stacked MCAs based on sales volume and repayment history. However, businesses relying on multiple advances often face cash flow shortages and may need MCA debt relief to break the cycle of high-cost borrowing.

Are There Restrictions on MCA Fund Usage?

Businesses can use MCA funds for any purpose, such as:

• Covering payroll and operational expenses
• Purchasing inventory
• Expanding business operations
• Marketing and advertising efforts

Since there are no restrictions, some business owners use MCAs without a clear repayment plan. This leads to financial strain, making MCA debt consolidation a necessary step to regain control.

Can a Business with Poor Credit Qualify for an MCA?

Yes, MCA providers approve businesses with low credit scores, often accepting scores as low as 500. Approval depends more on revenue consistency than credit history.

While accessibility is a benefit, businesses with poor credit often receive higher factor rates and shorter repayment terms, making MCAs even more expensive. Those with poor credit seeking better financial solutions may look into MCA debt restructuring to create a more manageable repayment plan.

What Happens If a Business Defaults on an MCA?

If a business cannot meet its repayment obligations, the MCA provider may:

• File a lawsuit based on a “confession of judgment” clause, which allows them to seize assets without court approval.
• Withdraw funds from business accounts, as some agreements require a personal guarantee.
• Take legal action against personal assets, including real estate and vehicles.

Defaulting on an MCA damages business finances and limits future funding opportunities. Businesses at risk of default should explore MCA debt relief before legal consequences escalate.

Is Refinancing an MCA Possible?

Yes, businesses can refinance MCAs if repayment terms are too restrictive. Refinancing replaces high-cost advances with structured loans, reducing overall costs.

For example, if a business is struggling with multiple MCAs, refinancing can lower daily deductions and extend the repayment period. This allows better cash flow management and prevents financial distress.

Making Smart Financial Decisions

At Value Capital Funding, we help businesses trapped in the cycle of MCA debt. Our MCA debt restructuring services offer a way forward—without new loans, collateral, or upfront fees. We also assist in MCA debt consolidation and refinancing, providing structured repayment options that ease financial pressure.

If your business needs a sustainable path to financial recovery, reach out today.