Understanding Merchant Cash Advance Funding in 2025 and Beyond

Business financing has changed a lot in the last 20 years. This is mainly because traditional loans are no longer the only way for businesses to access capital, as alternative funding options are becoming more accessible.

One type of business financing that is gaining popularity is merchant cash advance (MCA) funding. But what exactly is MCA funding and is it suitable for your business?

In this guide, we’ll explain what merchant cash advance funding is, how it works, who it’s for and how it compares to traditional financing—plus tips for managing it and exploring alternatives.

Let’s dive in.

• What is merchant cash advance funding?
• How merchant cash advances work
• Who should consider MCA funding?
• Comparing merchant cash advances with traditional funding
• Pros and cons of merchant cash advance funding
• Rates and fees for a merchant cash advance
• How to qualify for a merchant cash advance
• Evolving trends for MCAs
• Tips to manage MCA contributions
• Alternatives to merchant cash advance funding
• Where MCA funding fits into your future strategy
• Frequently asked questions about merchant cash advance funding

What is merchant cash advance funding?

A merchant cash advance is a type of funding where a business receives money upfront in exchange for a portion of its future sales. Unlike a traditional loan, an MCA is technically a purchase of your future revenue—the provider buys a share of your future sales at a discount, giving you cash quickly.

MCA funding emerged in the early 2000s to help retail businesses access capital without relying on banks. Its popularity grew after the 2008 financial crisis, when many small businesses couldn’t qualify for traditional loans. 

Today, the U.S. MCA market is worth about $20 billion and serves businesses across many industries, including retail, restaurants, healthcare and more.

How merchant cash advances work

A merchant cash advance gives you a lump sum of money quickly, often within a few days. In return, you remit the advance (plus fees) through future sales, which are automatically deducted either as a percentage of daily card sales or via fixed withdrawals from your bank account.

Remittance methods

Holdback rate (percentage of sales)

• Deducts 5–20% of daily credit card sales
• Best for businesses with seasonal or variable income
• Example: With a 10% holdback and $800 in daily sales, $80 goes to the MCA provider

Fixed ACH withdrawals

• Deducts a set amount from your bank account daily or weekly
• Best for businesses with steady, predictable income

Factor rates

MCAs use factor rates instead of traditional interest. A factor rate multiplies the advance amount to calculate the total remittance. For example, an $8,000 advance with a 1.3 factor rate totals $10,400 ($8,000 × 1.3).

Credit card MCAs

For businesses with frequent credit card transactions, MCA providers can connect directly with your payment processor.

How does this work?

• The agreed percentage is automatically sent to the MCA provider
• Remittance adjusts with daily sales volume
• No need to manually make payments

Most MCA providers can approve and fund applications in 1–3 business days, making them much faster than traditional bank loans.

Who should consider MCA funding? 

MCA funding is ideal for businesses that need fast access to capital or may not qualify for traditional bank loans. Approval is based primarily on sales history rather than credit scores, making it an option for newer businesses or those with less-than-perfect credit scores.

Businesses that might benefit include:

• Seasonal operations: Percentage-based remittance adjust with your sales cycle.
• Growing businesses: Quickly access funds for inventory, equipment or expansion.
• Newer businesses: Operated less than two years and not yet eligible for bank loans.
• Emergency needs: Cover unexpected expenses without delays.

Common industries using MCA funding include restaurants, retail, salons, auto repair shops and healthcare practices—especially those processing frequent card payments.

Comparing merchant cash advance loans and traditional financing

MCA funding and traditional bank loans have key differences in how they work, what they require and how you pay them.

Key differences in terms

Application and requirements:

• Traditional loans: Extensive paperwork, business plans, tax returns and strong credit scores
• MCA funding: Primarily bank statements and processing statements showing sales history

Approval speed:

• Traditional loans: Weeks or months for approval and funding
• MCA funding: 1-3 days for approval and funding

Collateral:

• Traditional loans: Often require business assets or personal guarantees
• MCA funding: No physical collateral required

Payment structure:

• Traditional loans: Fixed monthly payments over a set term
• MCA funding: Daily or weekly remittance based on sales or fixed withdrawals

Legal classification:

• Traditional loans: Legally defined loan agreements with interest
• MCA funding: Purchase of future receivables, not technically a loan

Why MCA funding can be more flexible

MCA funding offers several advantages for certain business situations:

Fast funding: When you need capital quickly, MCAs typically deliver funds within 24-48 hours after approval.

Flexible during slow periods: With percentage-based remittance, your remittance decreases when sales are lower.

Less emphasis on credit: Since approval focuses on business performance rather than credit scores, businesses with credit challenges can still qualify.

Simple process: The application and funding process involves minimal paperwork compared to traditional loans.

Pros and cons of merchant cash advance funding 

Like any financing option, merchant cash advances have both advantages and disadvantages.

Benefits of business cash advances

• Funding in as little as 24 hours
• High approval rates compared to traditional loans
• Simple application with minimal documentation
• No collateral requirements
• Remittances that adjust with your business performance
• Available to businesses with less-than-perfect credit

Drawbacks of MCA funding for businesses

• Higher overall cost compared to traditional loans
• Daily or weekly payments may impact cash flow
• Less regulatory oversight than traditional loans
• Confusing terms that can be hard to compare
• Factor rates that can translate to high effective APRs

Rates and fees for a merchant cash advance

As we touched on earlier, MCA funding costs are structured differently from traditional loans, using factor rates instead of interest rates.

Factor rates and MCA financing costs

A factor rate is a simple multiplier applied to your advance amount to determine your total remittance. Factor rates typically range from 1.1 to 1.5.

Here’s how it works with a simple example:

• Advance amount: $10,000
• Factor rate: 1.3
• Total remittance: $13,000 ($10,000 × 1.3)
• Cost of funding: $3,000

Factor rates are determined based on your business’s sales volume, time in business, industry type and overall business stability

While not directly comparable to interest rates, the effective annual percentage rate (APR) of an MCA can range from 40% to over 150%, depending on how quickly you pay it.

Some MCA providers also charge additional fees, such as origination fees, administrative fees and processing fees, so it’s crucial to check the terms of your MCA with your provider. 

Impact on cash flow

Since MCA remittances happen daily or weekly, they can impact your cash flow. However, with percentage-based contributions, the amount you pay adjusts with your sales:

• On slow days, you pay less
• On busy days, you pay more

With fixed ACH withdrawals, you pay the same amount regardless of your daily sales, which can create cash flow challenges during slower periods. Before taking an MCA, it’s important to analyze your daily cash flow to ensure you can handle the regular payments while covering your other business expenses.

How to qualify for a merchant advance

MCA providers evaluate your business differently from traditional lenders as they focus on your sales performance rather than credit scores or time in business.

While every MCA provider is different and will assess each business accordingly, most providers will look for these qualifications:

• Time in business: Usually at least 3-6 months of operation
• Monthly revenue: Typically $5,000-$10,000 minimum in monthly sales
• Processing volume: Regular credit/debit card transactions (for percentage-based remittance)
• Bank account history: Stable bank balances without frequent overdrafts

What documents are needed for an MCA?

Typically, MCA providers will ask for the following before processing your application.

• 3-6 months of business bank statements
• Credit card processing statements (if applicable)
• Business ID and license
• Proof of ownership

The application process is straightforward–most can be completed online in minutes, with funding possible within 24-48 hours after approval.

Evolving trends for MCAs

The merchant cash advance industry continues to shift in 2025, shaped by technology, regulation and the changing needs of small businesses. One of the biggest shifts is the role of technology in simplifying how MCAs are delivered. Today, most providers offer fully digital applications that can be completed in minutes, while integrations with point-of-sale systems allow providers to verify sales and collect payments automatically. Some POS platforms, including Lightspeed, now offer their own MCA solutions, making access to funding even more seamless. Advances in AI are also speeding up the approval process by analyzing business performance data in real time and mobile apps are giving business owners the ability to track their balances and remittance activity from anywhere.

At the same time, the MCA provider landscape itself is maturing. Many lenders are moving toward industry specialization, tailoring their products to the needs of sectors like restaurants, retail and eCommerce. Transparency has also become a bigger focus, with providers making costs and remittance timelines clearer upfront. New hybrid products are emerging that blend features of MCAs with more traditional loans, offering businesses greater flexibility. And with new state-level regulations requiring clearer disclosures, the MCA market is becoming more accountable and easier for business owners to navigate.

Tips to manage MCA contributions

If you decide to use MCA funding, having a plan to manage your contributions is crucial.

1. Best practices to track MCA debt

Monitor daily cash flow: Keep close track of your daily sales and how MCA remittance affects your available cash.

Separate accounts: Consider using a separate business account for MCA contributions to better track the impact.

Integrate with accounting: Make sure your MCA remittances are properly recorded in your accounting system.

Watch for warning signs: Be alert for cash flow problems like difficulty paying suppliers or needing to delay other bills.

Plan for seasonality: If your business has predictable slow periods, build cash reserves during busy times to help cover MCA contributions during slower months.

2. Strategies to mitigate high-risk MCA lenders

Not all MCA providers operate the same way. Here’s how to protect your business:

Read the entire agreement: Understand all terms, especially the factor rate, total payment amounts and remittance schedule.

Ask direct questions: Get clarity on how remittances are calculated, what happens if you miss a payment and whether there are penalties.

Check reviews and ratings: Research the provider’s reputation through online reviews from other business owners.

Watch for red flags: Be cautious of providers who pressure you to sign quickly or who don’t clearly explain terms.

Alternatives to merchant cash advance funding

Before committing to an MCA, consider these alternative funding options.

1. Business lines of credit: Function like a credit card where you only pay interest on what you use.
2. Invoice factoring: Sell your unpaid customer invoices for immediate cash, typically at 80-90% of their value.
3. Equipment financing: Loans specifically for purchasing equipment, using the equipment itself as collateral.
4. Short-term business loans: Traditional loans with terms under 18 months, often with weekly repayment.
5. Peer-to-peer lending: Online platforms that connect businesses with individual investors.

For longer-term needs, consider these options:

1. SBA loans: Government-backed loans with lower rates and longer terms, though with a lengthy application process.
2. Traditional bank loans: Lower-cost financing for businesses with strong credit and established history.
3. Business credit cards: Revolving credit lines that can help with smaller purchases and building business credit.
4. Term loans: Fixed-rate loans with predictable monthly payments over a set period.
5. Crowdfunding: Raising small amounts from many people, often with rewards rather than repayment.

Where MCA financing fits in your future strategy

MCA funding works best as a short-term solution for specific business needs rather than long-term financing. It can be valuable when you need capital quickly for opportunities that will generate immediate returns.

Smart uses for MCA funding include:

• Buying inventory at a discount
• Taking advantage of limited-time opportunities
• Covering emergency repairs to equipment
• Bridging seasonal cash flow gaps

Businesses that use point of sale (POS) platforms can use data from the system to help strengthen their MCA applications. POS systems like Lightspeed track sales performance, inventory turnover and customer patterns–all information that MCA providers consider when making funding decisions.

Today, a growing number of fintech companies provide merchant cash advances. If you’re already doing business with a provider you have a solid relationship with, it makes sense to investigate their cash advance offerings.

Lightspeed’s merchant cash advance program, Lightspeed Capital, is available exclusively to eligible Lightspeed merchants. To learn more about the program, visit our website.

If you’re not yet a Lightspeed customer, talk to one of our experts to learn how Lightspeed Capital can work for your business and how our POS system can help you track business performance metrics to strengthen your funding applications.

Frequently asked questions about merchant cash advance funding

Can businesses with bad credit qualify for merchant cash advance funding?

Yes, businesses with poor credit can often qualify for MCA funding since approval is based primarily on sales volume and business performance rather than credit scores.

How quickly can a business receive MCA funding after approval?

Most MCA providers deposit funds within 24-48 hours after approval, making it one of the fastest funding options available.

Are there industry restrictions for merchant cash advance eligibility?

While most industries qualify, some high-risk sectors may face restrictions or higher factor rates from certain MCA providers.

How does seasonal business revenue affect merchant cash advance remittance?

With percentage-based contributions, the amount you pay adjusts automatically with your sales volume, making MCAs potentially suitable for seasonal businesses.

Can a business have multiple merchant cash advances simultaneously?

Yes, businesses can have multiple MCAs at once, but this practice (called “stacking”) can create serious cash flow problems and should generally be avoided.

Editor’s note: Nothing in this blog post should be construed as advice of any kind. Any legal, financial or tax-related content is provided for informational purposes only and is not a substitute for obtaining advice from a qualified legal or accounting professional. Where available, we’ve included primary sources. While we work hard to publish accurate content, we cannot be held responsible for any actions or omissions based on that content. Lightspeed does not undertake to complete further verifications or keep this blog post updated over time.