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What is a merchant cash advance?

This flexible funding was built for retailers. But is it right for your business?

Without time-consuming credit checks and rigid repayment plans, merchant cash advance is perfectly suited to the fast-paced, unpredictable world of retail. Similar to a business loan, but with several important differences, a merchant cash advance may suit any company that receives the majority of its payments by card.

What is a merchant cash advance?

A merchant cash advance is a type of business financing for companies that have a large amount of credit card sales. Your business gets quick access to revenue from sales and then repays it plus a fixed charged based on a percentage of your sales. Merchant cash advances can be set up as daily or weekly financing.

Merchant cash advances are designed to provide a temporary cashflow solution to business owners who might not be able to qualify for other types of financing. It's typically fast, but it can be one of the more expensive business financing options out there.

Compare 3 merchant cash advance companies

Thinking of getting a merchant cash advance? Let's take a look at how these three lenders work.


$5,000 to $750,000

Factor rate of typically 1.1 to 1.3

0.33 years to 1.25 years

6+ months in business, $12,000+ monthly revenue, no open bankruptcies">6+ months in business, $12,000+ monthly revenue, no open bankruptcies">6+ months in business, $12,000+ monthly revenue, no open bankruptcies">6+ months in business, $12,000+ monthly revenue, no open bankruptcies">12+ months in business, $15,000+ monthly revenue, no open bankruptcies


$5,000 to $500,000

Up to 25%Up APR

to 1.17 years

1+ year in business, $10,000+ monthly revenue, 500+ credit score

Rapid Finance

$5,000 to $1,000,000


Up to 5 years

Steady flow of credit card sales, bad credit OK

Fora Financial

Fora Financial is a direct lender that provides short-term business loans and merchant cash advances. Your business can apply with a quick online application. While more expensive than other types of business financing, Fora Financial's typical factor rates are relatively low. However, its turnaround time of up to 72 hours is slightly longer than what you might find elsewhere.


Lendr is another direct lender that specializes in merchant cash advances. The total loan cost, comes out to around , including the factor fee. You don’t need to have good credit to qualify — or even fair credit for that matter. But your business must be around for at least one year. In addition to merchant cash advances, Lendr also offers working capital loans, equipment loans and more.

Rapid Advance

RapidAdvance is another online direct lender that specializes in short-term business financing, including merchant cash advances. Businesses can typically qualify for between 85% and 250% of their monthly credit card sales and all credit types are accepted. However, RapidAdvance isn’t forthcoming about its rates as some other lenders, so you need to request a quote before you can compare it with other lenders.

How does a merchant cash advance work?

A merchant cash advance works a lot like a short-term business loan. You apply for a one-time sum, typically based on your monthly credit card sales. Your business then pays this back plus a fee that your lender determines by something called a factor rate or factor fee.

Instead of making fixed installment payments, your business then pays off the loan with a percentage of each credit card transaction, sometimes called the holdback. Holdbacks typically range from 10% to 20% of each sale. So how long it takes to pay back your loan is determined by your holdback rate and your sales — not a set loan term.

Some companies also have a minimum monthly payment that your business must make even if it doesn’t have any sales. Many have a maximum amount of time your business can take to repay a merchant cash advance, typically around one year.

Factor rates explained

A factor rate is a number above 1 that your lender uses to come up with your total loan cost. It does this by multiplying your factor rate by your loan amount. They typically range from 1.1 to 1.5, though some lender charge factor rates of 3 or even higher.

Let’s take a look at an example. Say your business qualifies for a $10,000 merchant cash advance from a lender at a factor rate of 1.15. Here’s how it breaks down:

  • How much your business receives: $10,000
  • How much your business owes: $11,500
merchant cash advance

Is my business eligible for a merchant cash advance?

Merchant cash advances are ideal for retailers and e-commerce businesses. But any business with a high volume of credit card sales might be able to qualify.

This can even mean young businesses and owners with poor credit. Some merchant cash advance companies are even willing to work with businesses that have been around for as little as three months. However, you can't use a merchant cash advance to fund your startup — qualification typically depends on your business's credit card sales record.

What are the benefits of a merchant cash advance?

  • It's quick and efficient. Unlike business loans that can take months to be approved, a merchant cash advance can provide you with much-needed funds in a couple of weeks or less.
  • Collateral isn't required.You don't need to provide any business or personal assets to be approved in order to qualify for a merchant cash advance.
  • There's no credit check. While this isn't guaranteed, advances for smaller amounts can regularly be obtained with a less-than-perfect credit score.
  • Repayments are based on sales. The amount you repay changes according to your earnings. This ensures small companies with changing levels of income don't get caught out with fixed repayments.

Are there any drawbacks?

  • It's expensive. With terms typically hovering around one year, even the least expensive merchant cash advances can cost the equivalent of a triple-digit APR — high compared to other types of business financing.
  • You can't save by prepaying. The factor rate applies no matter how long your business takes to pay back the advance, meaning that paying early won't save you anything.
  • There's a lack of regulation. Merchant cash advances aren't regulated by federal banking laws, so regulations vary by state.
  • It's not a long-term solution. Merchant cash advance plans usually last no longer than 12 months. Along with the cost, this means they are unlikely to provide positive results other than for a short period.
  • It can be risky. While past sales information should be an accurate indicator of future sales, industries such as retail and hospitality can be fickle. If your business can no longer pay off the advance, you will need to find the repayment money elsewhere.

Compare more business loans from top lenders

Explore your options by loan amount, APR and requirements. Select the Go to site button for more information about a particular lender.

1 – 6 of 6
Name Product Filter Values Min. Amount Max. Amount APR Requirements

Lendio business loans
Finder Rating: 4.75 / 5: ★★★★★

Lendio business loans
Starting at 6%
Operate business in US or Canada, have a business bank account, 560+ personal credit score
Submit one simple application to potentially get offers from a network of over 300 legit business lenders.

OnDeck short-term loans
Finder Rating: 4.6 / 5: ★★★★★

OnDeck short-term loans
29.9% to 99.9%
625+ personal credit score, 1 year in business, $100,000+ annual revenue, active business checking account
A leading online business lender offering flexible financing at competitive fixed rates.

ROK Financial business loans
Finder Rating: 4.7 / 5: ★★★★★

ROK Financial business loans
Starting at 6%
Eligibility criteria 3+ months in business, $15,000+ in monthly gross sales or $180,000+ in annual sales
A connection service for all types of businesses — even startups.

Fundera business loans
Finder Rating: 4.9 / 5: ★★★★★

Fundera business loans
7% to 30%
$50,000+ of annual revenue, 620+ personal credit score, in business for 6+ months
Get connected with short-term funding, SBA loans, lines of credit and more.

Biz2Credit business loans
Finder Rating: 4.7 / 5: ★★★★★

Biz2Credit business loans
Starting at 6.50%
6+ months in business; $100,000+ annual revenue; 500+ credit score
Get only the capital you need through secure, prescreened lenders with this highly rated company offering SBA, expansion, working capital and other loans.

Fora Financial business loans
Finder Rating: 4.1 / 5: ★★★★★

Fora Financial business loans
12+ months in business, $15,000+ monthly revenue, no open bankruptcies
Get qualified for funding in minutes for up to $750,000 without affecting your credit score. Best for companies with at least six figures in annual revenue.

Compare up to 4 providers

Anything else to watch out for?

Merchant cash advances are often referred to as business payday loans — and for good reason. With no federal regulation, your lender has a lot more leeway when it comes to how much it can charge you and how it discloses its fees. Watch out for complicated contracts that are difficult to follow — your lender might be trying to hide something. If possible, take some time to review your contract and ask an expert if there's anything that isn't clear.

The lack of federal regulation also means that lenders need to meet state requirements to legally offer financing. Double-check to make sure your lender is able to lend in your area before applying for a loan.

How does the application work?

The application is often simple, meaning that it often has a faster turnaround time than other types of business financing. Lenders typically only have a monthly or annual sales requirement and accept all credit types. Some might not even run a credit check for smaller advances.

Often, you can apply online by filling out a quick application. Once your application has been approved, some lenders might ask you to open a separate bank account known as a "pass through" account. You can then use this for processing any transactions and the lender can collect their share. Others might simply ask for access to your business's bank or Paypal account to withdraw the repayments.

How can I get out of a merchant cash advance?

Sometimes merchant cash advance repayments can slow your business down, especially if you don’t have the sales you expected. In that case, you might want to look into refinancing. There are two main ways to refinance a merchant cash advance: Refinance with a traditional business loan or refinancing with another merchant cash advance.

Both can be expensive options: With a term loan, your business pays interest and fees on top of the fees already rolled into your merchant cash advance. With another merchant cash can often means doubling up on the factor rate. However, term loans typically come with monthly repayments which are often easier to manage. It can also your business on a solid path to pay off the debt.

How to refinance a merchant cash advance

Merchant cash advance alternatives

Don't think a merchant cash advance is right for your business? Consider these alternatives instead.

  • Cash flow loans. A cash flow loan, also often referred to as an ACH loan or revenue-based financing, works like a merchant cash advance but is based on your business's daily bank deposits rather than credit card sales.
  • Asset-based financing. Can't qualify for an unsecured business loan? Backing your loan with your business and personal assets can help you get access to more funding, typically 80% or 90% of your assets's value.
  • Alternative business loans. Some lenders offer alternative short-term financing options that work a lot like a merchant cash advance. But daily repayments are fixed instead of a percentage of your deposits or credit card sales.
  • Invoice factoring. Need a cashflow fix but work with other businesses or government agencies? Get an advance on your unpaid invoices by selling them to a factoring company at a discount. There are several different types of invoice factoring.
  • Invoice financing.Use your business's unpaid invoices to back short-term business loan and repay it as your customers pay you.
  • Short-term business loans. If your business needs money up front and doesn't rely on customer sales, many alternative lenders offer short-term loans that work a lot like merchant cash advances but come with repayments in fixed installments.

Bottom line

Merchant cash advances might be an easy way to get cash when your business is facing a seasonal dip in sales. It's also one of the few options that doesn't require a credit check. But the high cost and lack of regulation might make you want to consider other options first. You can get started by checking out our business loans guide.

Frequently asked questions about merchant cash advances

What happens if I default on a merchant cash advance?

If your business has a slower-than-expected season and can't make the minimum monthly payments, your merchant cash advance company could file a lawsuit against it for breach of contract. If you lose the lawsuit, a judge might order you or your business to pay back what you owe. However, since a merchant cash advance is an unsecured loan, it can't collect any of your assets unless it files a lawsuit.

Is a merchant cash advance a loan?

Technically, no. Merchant cash advances are considered a cash advance rather than a loan, part of the reason why there's so little regulation.

What can I use the funds from a merchant advance for?

You can use the funds from a merchant advance for any legitimate business purpose.

Are there any other fees?

It depends on the lender. Some lenders charge application or origination fees, which are rolled into the total cost of the loan. You might also have to pay a fee if your business doesn't meet its monthly minimum or pay back the loan on time.

Does taking out a merchant advance help build business credit?

No. Merchant advance lenders do not report to any of the credit bureaus, so taking out a merchant advance will not affect your business credit.

How do I accept credit card payments for my business?

It depends on your business needs. Check out our full guide on setting up credit card payments for your business.

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