Merchant Cash Advance (MCA)
Definition
A merchant cash advance is a financing arrangement where a business receives a lump sum of capital in exchange for a percentage of future credit card sales or daily bank deposits. Unlike a traditional loan, an MCA is technically a purchase of future receivables. Repayment is automatic — a fixed percentage (the holdback or retrieval rate) is deducted from daily sales until the total purchased amount is repaid. MCAs are popular with businesses that have high daily transaction volume but may not qualify for bank loans due to credit issues, limited time in business, or lack of collateral. Approval is fast, often within 24–48 hours, and funding can happen the same day.
Example
A restaurant generating $30,000/month in credit card sales receives a $40,000 MCA with a 1.35 factor rate and 15% holdback. They repay $54,000 total, with roughly $150/day withheld from daily sales until the balance is satisfied.
Related Terms
Factor Rate
A factor rate is a multiplier used to determine the total cost of a merchant cash advance or short-t...
Stacking
Stacking refers to the practice of taking out multiple merchant cash advances or business loans simu...
Holdback
In merchant cash advance agreements, the holdback (also called retrieval rate or withholding percent...
Retrieval Rate
The retrieval rate is another term for the holdback percentage in a merchant cash advance. It repres...
Revenue-Based Financing (RBF)
Revenue-based financing is a funding model where a business receives capital in exchange for a fixed...
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