Originally published December 13th, 2022
Last updated May 20th, 2025
Every company faces cash flow fluctuations. However, cash flow shortfalls can be devastating to small e-commerce businesses. According to a recent survey, 32% of e-commerce businesses fail because of a lack of capital. Finding financing options to bridge the financial shortfall can be challenging, especially for businesses that have been operating for less than two or three years.
Merchant cash advances are one of the most accessible forms of alternative financing options for small business owners facing unexpected costs or seasonal downturns.
Traditional business loans or credit lines usually require two years of financial history and can take weeks for approval. Financial institutions may want personal and business tax returns plus financial statements. They may require collateral or a personal guarantee to secure the loan.
Merchant cash advances (MCAs) are financing solutions that do not require tax returns or personal guarantees. They provide financing based on future credit card sales or debit card transactions. They are an option for retailers who need an influx of working capital quickly and may not meet the requirements for traditional business loans.
What is a Merchant Cash Advance (MCA)?
MCAs offer e-commerce businesses alternative financing based on future credit or debit card sales. The advance amount is a lump sum deposit to a merchant account that is repaid from future sales. MCA providers withdraw a percentage of credit card sales according to a set repayment schedule, which may be daily, weekly, or monthly.
The approval process is typically fast and doesn’t involve a credit check, making it ideal for startups or those with bad credit.
The Federal Trade Commission monitors companies offering merchant cash advances; however, these lenders do not fall under the Truth in Lending Act. Instead, MCA providers are regulated according to their Uniform Commercial Code. Merchants should review the terms and conditions of MCA lenders before accepting an advance.
Related: What is a Merchant Cash Advance?
How Does an MCA Work?
Merchant cash advance providers look at a retailer's credit and debit card sales. They may want to assess bank statements, inventory, and sales history before setting a maximum advance amount. E-commerce lenders may perform their analysis electronically through API-based interfaces that extract data from a merchant's website.
Lenders evaluate different business metrics, such as sales history, inventory, and cash flow. Based on their assessment, lenders will provide a business owner with a business cash advance typically deposited into a business bank account. Merchants repay the MCA through automatic withdrawals.
Applying for an MCA
MCA applications can be approved in minutes, with fast funding available within hours. When evaluating a merchant's application, MCA lenders consider credit card receipts, consistency in credit card processing, and repayment structure. Financing can range into the millions, although most advances are for less than $500,000. Because MCA providers are buying a percentage of future sales, the merchant cash advance is considered unsecured, and no collateral or personal credit is required.
Repaying an MCA
Merchant cash advances use a factor rate instead of an interest rate to determine repayment amount. For example, a cash advance amount is $5,000. The factor rate is 1.3. Multiply the advance amount by the factor rate to determine the total repayment amount of $6,500.00. That does not include any fees that lenders charge for origination and administration.
Repayment terms can vary, but most merchant cash advances are short-term financing tools designed to cover immediate business needs.
Lenders deduct 10% to 20% of a merchant’s credit card sales. The percentage may be deducted daily or weekly using one of the following repayment options:
Automated Clearing House (ACH) Withdrawals
ACH withdrawals are taken directly from a bank account. Depending on the agreement and the lender, the amounts can be fixed or variable. If fixed, the same amount is withdrawn every time, regardless of a merchant's total sales. With ACH processing, the lender submits an ACH debit request at the end of a processing day.
Some MCA lenders work with a payment processor so that transactions coming from a merchant are split between the merchant and the lender. If the lender receives 10% of each sale, the processor sends 10% of the sale amount to the lender and the remaining 90% to the merchant.
Alternatively, lenders can deduct their percentages directly using API-based interfaces with e-commerce sites. The split payment method happens automatically with little merchant involvement.
How Can E-commerce Merchants Use an MCA?
Merchant cash advances can be used to grow an e-commerce business and ensure consistent operations. There’s no limit on how a business cash advance can be used. For example, online retailers can use MCAs for the following:
Stabilize Cash Flow
Online merchants may struggle with cash flow. They have funds; they just aren’t available when needed. Flexible repayment options make merchant cash advances ideal for navigating uneven revenue.
Purchase Inventory
E-commerce businesses can use MCAs to purchase inventory in bulk and stay ahead of supply chain disruptions.
Navigate Occasional Expenses
MCAs can serve as a stopgap for one-time expenses like taxes, inspections, and repairs, especially when short-term funding is required.
Manage Unplanned Expenses
MCAs offer a quick access solution to address unexpected issues like equipment failure or insurance premium increases.
Expand Business
Whether it’s adding a new product line or entering a new market segment, an MCA can provide the capital for strategic growth.
Purchase Equipment
Need to upgrade software or buy a new printer? Merchant cash advances are a viable funding option for necessary equipment purchases without draining existing reserves.
Increase Marketing
Marketing is crucial for increasing your conversion rates and customer acquisition. MCAs help fund digital marketing, PPC campaigns, or social media ads that generate leads and drive sales.
Related: The Basics of Funding for Ecommerce Businesses
What are the Pros and Cons of MCAs?
Merchant cash advances may not be the right solution for every e-commerce business. However, for entrepreneurs who need fast funding and don’t qualify for traditional bank loans, MCAs offer a unique and powerful type of financing.
Advantages
- No credit check required
- Fast approval rates
- Flexible repayment terms
- No collateral or personal guarantee needed
- Perfect for startups and businesses with a limited credit history
Disadvantages
- High cost of borrowing (depending on the APR or factor rate)
- Limited transparency unless merchants ask specific FAQs
- Some MCA lenders impose restrictions or require a specific payment processor
- Can reduce future cash flow if not managed properly
Get a Merchant Cash Advance
Merchant cash advances are a flexible, efficient, and fast business funding option for merchants who need immediate working capital. Onramp offers a streamlined application process, low barriers to eligibility, and transparent repayment structures. Our team understands the financial pressures faced by small business owners, and we’re here to help.
If you're exploring alternative financing to stabilize your business, purchase inventory, or seize a new opportunity, contact us today to learn how a merchant cash advance can support your long-term success.
