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Merchant Cash Advance

Merchant Cash Advance (MCA) is not a loan—it’s an advance of cash today in exchange for a slice of tomorrow’s credit- and debit-card sales (or, in some arrangements, a fixed daily/weekly bank-account withdrawal).

How it works

  1. Lump-sum up-front: The MCA provider wires you a single amount (e.g., $50 k).
  2. Cost is set by a “factor rate” (e.g., 1.35). Multiply the advance by this rate to know the total you’ll pay back ($50 k × 1.35 = $67.5 k).
  3. Daily (or weekly) repayment:
    • Traditional model: The provider automatically skims 5 %–20 % of every card settlement until the $67.5 k is collected—slow days mean smaller deductions, busy days bigger ones.
    • ACH model: A fixed dollar amount is debited from your bank account daily/weekly regardless of sales volume.
  4. Typical pay-off period: 3–18 months, depending on your card volume.

Key points

  • Approval speed: 24–48 hours, minimal paperwork, weak credit OK.
  • Cost: Equivalent APRs often land in the 40 %–200 %+ range, making MCAs one of the most expensive forms of business capital.
  • No collateral and no impact on business credit (because it’s legally a sale of future receivables, not a loan).
  • Risk: Some contracts contain a confession of judgment, allowing the funder to freeze bank accounts or seize assets without a court hearing if you default.

Best uses
Covering short-term gaps—inventory restock, emergency repairs, payroll, or marketing blitzes—when speed outweighs cost and you expect strong daily card sales to retire the advance quickly.

Bottom line
An MCA is fast, easy, and unsecured, but the high price and aggressive daily deductions can strain cash flow; compare it against lower-cost options (line of credit, invoice factoring, SBA micro-loan) first.

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Advantages of Merchant Cash Advance

  • Cash in hand within 24–48 hours
  • Approval based on daily card sales, not credit score or collateral
  • No personal or business assets pledged
  • Repayment flexes with sales volume—smaller remittance when revenue dips
  • One-page application and minimal paperwork
  • Funds usable for any business purpose without restriction
  • Fixed total payback; early sales velocity shortens the term without extra fees
  • Does not appear as debt on most business credit reports, keeping revolving lines free
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Merchant Cash Advance Case Study (names, details modified for privacy protection)


How a Merchant Cash Advance (MCA) Allowed a Business Owner to Seize a Time-Sensitive Expansion Opportunity—Without Falling into a Debt Trap

  1. The Business & Owner
  • Name: “Sunrise Café & Roastery,” a 5-year-old specialty coffee roaster-retailer with three urban locations in Portland, OR.
  • Owner: Maya Patel, 38, barista-turned-founder, 80 % equity holder.
  • FY-2024 numbers: $2.8 M revenue, 19 % EBITDA margin, no existing debt except normal trade payables.
  • Personal credit: 670 (thin file after divorce); business credit: “fair” because of one late equipment lease payment.
  1. The One-Time Opportunity
    A distressed landlord contacts Maya on March 1, 2025: a 1,200 sq ft corner site in a new high-rise development at PSU campus will be vacant April 1. The landlord will give Sunrise:
  • 50 % rent discount for 24 months ($4,200 vs $8,400/mo)
  • $60 k turnkey build-out credit
  • Exclusive coffee rights in the building
    … but only if Maya signs a 7-year lease by March 15 and demonstrates $120 k liquid within 48 hours to fund espresso lab, roaster upgrade, and working capital.

Traditional bank/SBA timeline: 45-60 days. Maya needs cash in 48 hours.

  1. Structuring the MCA
    On March 2 Maya conducts Business Credit Success Scan™ at BusinessMoney.broker, qualifies, and applies for Merchant Cash Advance the same day:

Advance amount: $150,000
Factor rate: 1.22 (total repayment = $183,000)
Retrieval rate: 12 % of daily card sales (NOT fixed daily ACH)
Estimated term: ~6.5 months at current card volume ($7,500/day avg)
Estimated effective APR: 42 % (high, but within her expansion ROI)
No personal guarantee beyond standard “confession of judgment” (COJ) in Oregon.
Reconciliation clause: if 12 % of actual card sales exceeds 180-day target, excess is refunded pro-rata.

  1. 48-Hour Funding & Lease Signing
  • March 2, 10 a.m.: Online application, 3 months of bank/POS statements uploaded.
  • March 2, 5 p.m.: Underwriting approves; DocuSign at 6 p.m.
  • March 3, 9 a.m.: $150 k hits her operating account.
  • March 3, 2 p.m.: Maya wires $120 k to landlord’s attorney as security deposit & first month’s rent; lease countersigned.
  1. Expansion Execution (March–June 2025)
    Week 1-3: Build-out begins using landlord’s $60 k credit + $35 k from MCA.
    Week 4: Soft-open for PSU finals week; campus foot traffic 40 % above projections.
    Week 5: Adds nitro cold brew tap; daily card sales jump from $7,500 to $9,200.
    Week 7: Roaster upgrade (Diedrich IR-7) installed; wholesale B2B line launched.
  1. Cash-Flow Management & Exit from MCA
    Because retrieval is a true percentage of card sales, higher revenue accelerates payoff:

Average daily card sales after expansion: $9,200
12 % retrieval: $1,104/day
Actual repayment period: 166 days (~5.5 months)
Total paid: $183,000 (no early-pay penalty)

Maya keeps a spreadsheet; when daily withholding exceeds 12 % of actual sales (due to POS rounding), she files for reconciliation refund—$1,870 returned in month 4.

  1. Financial Outcome (First 12 Months)
  • New location revenue: $540 k (Year 1)
  • Incremental EBITDA: $162 k (30 % margin)
  • Net cost of MCA: $33 k (interest/fees)
  • 12-month ROI on expansion capital: 162/120 = 135 % (even after MCA cost)
  • Debt-free by August 2025; bank line of credit secured in September at prime + 2.75 % to fund second campus kiosk.
  1. Why This MCA Worked (Lessons for Other Owners)
  2. Time Lock: The 48-hour window made the MCA the only viable bridge.
  3. Negotiated Terms: Retrieval tied to sales, not fixed ACH, prevented cash-flow squeeze when revenue dipped during spring break.
  4. High-ROI Use: Funds directly deployed to assets generating incremental cash flow, not to plug operating losses.
  5. Short Duration: Business volume and margin could absorb a 42 % APR for <6 months.
  6. Exit Strategy: Maya had a clear payoff path (new revenue) and immediately pursued cheaper bank financing afterward.
  1. Red Lines the Owner Drew (and You Should Too)
  • Never take MCA for >15 % of annual revenue.
  • Ensure reconciliation clause is genuine (tested by requesting sample refund).
  • Cap effective APR at <50 % if payoff horizon ≤6 months.
  • Require no blanket UCC lien on all assets—only on future card receivables.
  • Keep personal guarantee limited; avoid COJ in states that enforce it aggressively.

Bottom Line
In this hypothetical—but realistic—scenario, a carefully negotiated, short-term MCA functioned as high-octane bridge financing that let the owner capture a once-in-five-years real-estate concession. The critical success factors were (1) the advance funded an immediately cash-flowing asset, (2) repayment was tied to actual sales, and (3) the owner had a pre-planned exit to cheaper capital within six months.

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