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Is An MCA Loan Right For Your Startup? 4 Pros And Cons

Embarking on entrepreneurship brings a thrilling mix of enthusiasm and intimidation. As a founder, your startup likely stems from ambitious visions and innovative concepts. However, securing the necessary funding to turn your vision into reality is one of the biggest challenges. Traditional small business loans from banks often require a strong credit history, existing assets for collateral, and a proven track record, which new startups usually lack. 

This is where merchant cash advance (MCA) loans come in as an alternative financing option worth considering for your fledgling business. But are MCA loans the right choice for funding your startup? 

Here are some key pros and cons to weigh when deciding if an MCA loan is right for your needs.

What Are MCA Loans And How Do They Work?

MCA loans allow businesses to borrow against their future sales and credit card receivables. An MCA company provides upfront capital in exchange for an agreed-upon percentage of the business’s future sales over a set period of time, often 6-18 months. The loan is repaid automatically through daily withdrawals from the business’s credit card or debit card sales.

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The amount advanced is typically based on the company’s average monthly sales, and repayment terms vary based on the company’s finances and creditworthiness. Unlike bank loans, MCAs do not have fixed interest rates. The merchant instead pays a specified percentage of daily credit card sales until the full advanced amount plus the agreed fee is repaid.


Pros Of MCA Loans For Startups

  • Quick Access To Capital

The biggest advantage of MCA loans for startups is the ability to quickly access capital, often in as little as 24-48 hours. The underwriting process is faster and easier compared to traditional loans since it focuses more on sales volume versus credit scores or existing assets. This quicker access to funding can be invaluable for purchasing inventory and equipment, meeting payroll, expanding marketing efforts, or covering other expenses needed to build your business.

  • Less Strict Qualification Requirements

Whereas banks usually require a high personal credit score and collateral to secure a small business loan, the qualification process for an MCA focuses more on your merchant processing records. As long as you have a legitimate business with steady sales activity, you have a good chance of approval regardless of your personal credit profile. This gives startups without lengthy operational histories or strong FICO scores better odds of securing the necessary funding from lenders like Credibly in USA.

  • No Collateral Required

Unlike a bank loan, an MCA does not require any business or personal assets for collateral. The MCA company’s risk is reduced since repayment comes directly from a percentage of the business’s future sales. This, again, can benefit early-stage startups that have not accumulated significant business assets or inventory to pledge. Less risk for the lender translates to easier access to capital for the borrower.

  • Fixed Daily Payments

One advantage of MCA loans is the fixed daily payment structure that deducts a set percentage of each day’s credit card receipts. This structured payment schedule helps startups budget and provides more predictable repayments versus a large monthly loan bill. The percentage remains consistent even as revenues fluctuate month-to-month.

Cons Of MCA Loans For Startups

  • Higher Cost Of Capital

The biggest downside of MCA loans is the high cost. The total amount repaid includes the initial capital plus a negotiated fee that is often equivalent to an annualized interest rate between 30-60%. This is considerably higher than the typical rates for traditional bank loans. However, the higher cost may be worth it if the easier access to capital enables your startup’s growth and success. Still, entrepreneurs should crunch the numbers to determine if the cost provides enough value.

  • Lengthy Repayment Period

While accessing funding is fast with an MCA, the repayment period is typically lengthy. It is not unusual to be making daily payments for 12-18 months to fully repay an MCA loan. Startups must consider if they are comfortable diverting a percentage of sales for over a year to pay off the advance. For businesses with tight cash flow or slim profit margins, this extended payment schedule could put a strain on finances.

  • Potentially Reduced Cash Flow

Since fixed daily payments are deducted from credit card sales, having a chunk of revenue consistently diverted could restrict cash flow available for other business needs. Startups must ensure they have enough remaining cash flow to cover all operating expenses, inventory purchases, payroll, taxes, and other obligations even after the daily MCA payment.

  • No Chance To Improve Credit Score

Making on-time payments on an installment loan like a bank small business loan helps build your personal or business credit score. MCA repayments do not appear on personal credit reports. While easy access to capital is the benefit, MCA loans miss the potential credit score boost of traditional financing options.


Launching a startup comes with tremendous excitement and challenges, including securing favorable financing as an unproven business. MCA loans offer easier capital access based on sales volume, not credit or assets. However, the high costs and lengthy repayment are downsides to weigh.

Crunch the numbers, evaluate cash flow, and find a reputable provider. With eyes open to the pros and cons, MCAs may viability fund your startup’s launch. The key is clarity on how MCAs align with your financial needs and growth goals.

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