Cash Flow

What is a Merchant Cash Advance and How Can You Get One for Your eCom Store?

What is a Merchant Cash Advance and How Can You Get One for Your eCom Store?

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.

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 are financing options that do not require tax returns or personal guarantees. They provide financing based on future credit or debit card sales. They are an option for retailers who need an influx of cash quickly and may not meet the requirements for traditional business financing.

What is a Merchant Cash Advance (MCA)?

Merchant cash advances offer e-commerce retailers alternative financing based on future credit or debit card sales. The advance is a lump-sum deposit to a merchant's account that is repaid from future sales. Lenders withdraw a percentage of credit card sales according to a set schedule which may be daily, weekly, or monthly to repay the cash advance.

The Federal Trade Commission monitors companies offering merchant cash advances; however, these lenders do not fall under the truth in lending act. Instead, MCA lenders are regulated according to their Uniform Commercial Code. Merchants should review the terms and conditions of lenders before accepting an MCA.

Related: What is a Merchant Cash Advance?

How Does an MCA Work?

MCA lenders look at a retailer's credit and debit card sales. They may want to assess inventory levels 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 retailer's website. The merchant must provide the necessary information if the lender does not support electronic access.

Lenders evaluate different business metrics, such as sales history, inventory, and cash flow. Based on their assessment, lenders will provide an e-commerce merchant with a lump sum amount, usually deposited to a business bank account. Merchants repay the amount through automatic withdrawals.

Applying for an MCA

MCA applications can be approved in minutes, with funds available within hours. When evaluating a merchant's application, lenders consider credit card receipts and sales consistency. Financing can range into the millions, although most advances are for less than $500,000. Because lenders are buying a percentage of future sales, the advances are considered unsecured, and no collateral or personal guarantee is required.

Most lenders determine eligibility based on the following:

  • Type of business
  • Average monthly credit and debit card sales.
  • Length of business operations
  • Requested amount

They may also assess warehousing and inventory data. The lender deposits the funds to the e-commerce merchant's business checking or savings account if the requested amount is approved.

Repaying an MCA

Merchant cash advances use a factor rate instead of an interest rate to determine repayment amounts. 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.

Lenders deduct 10% to 20% of an e-commerce merchant's credit and debit card sales. The percentage may be deducted daily or weekly using one of the following payment 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. 

Split Payments

Some cash advance 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. This split payment occurs at the time of the transaction.

Alternatively, lenders can deduct their percentages directly using API-based interfaces with e-commerce shopping 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 the business uses of an MCA. For example, e-commerce merchants 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. No merchant wants to fail to pay employees or delay purchasing needed supplies. Cash advances can help stabilize cash flow, making money available as needed. Having access to additional funds can help carry an e-commerce merchant through seasonal fluctuations.

Purchase Inventory

Supply chain disruptions create chaos for e-commerce merchants. Purchasing inventory in advance enables retailers to minimize supply shortages. Unfortunately, online merchants may not have excess funds to increase their inventory. MCAs allow merchants to buy inventory ahead of seasonal upticks to ensure maximum sales.

Navigate Occasional Expenses

Businesses pay taxes, need inspections, and require repairs. If cash flow is tight, e-commerce merchants may find it difficult to meet those obligations. MCAs can provide the needed cash to pay for occasional expenses. 

Manage Unplanned Expenses

Life happens. Equipment fails during peak sales periods. Insurance premiums increase unexpectedly. Unplanned expenses are part of running a business. Finding financial resources quickly may seem impossible using traditional financing options. MCAs are designed to give e-commerce merchants access to capital quickly. 

Expand Business

Sometimes merchants find unexpected opportunities to grow their businesses. For example, maybe they can purchase added inventory at discounted prices. Or maybe adding functionality to an e-commerce site may be offered at a promotional price. Whatever the opportunity, merchants need access to cash to take advantage of the chance to grow their business. MCAs can make that happen.

Purchase Equipment

Merchants needing to replace equipment may not have the financial resources. If they don't purchase new equipment, the existing printers or workstations could stop working, causing unscheduled downtime. Rather than wait for something to fail, e-commerce merchants can use their future sales to purchase equipment before it breaks.

Increase Marketing 

Marketing is crucial for successful online sales, but it can be expensive. MCAs can provide e-commerce merchants with the funds to increase their online presence for better customer engagement.  They can look at promotional opportunities or place ads on select websites. Using MCAs to fund marketing efforts can help grow a business.

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 merchant. The viability of MCA depends on the merchant. If looking for fast access to funds, MCAs can provide a quick influx of cash; however, merchants should understand MCA financing to ensure they are receiving the best possible solution for their business.


For e-commerce merchants with seasonal sales, MCA provides flexible repayment terms. Rather than a fixed repayment amount, MCAs repayment amounts are tied to credit and debit card receipts. A slow month means a lower payment amount and less impact on cash flow.

MCAs offer businesses with limited or poor credit history access to funds without a lengthy approval process. MCA lenders evaluate a merchant's creditworthiness based on sales, not on years of tax returns and financial statements. 

Automatic repayment can help merchants build credit and avoid late fees. Automated payments minimize the stress associated with borrowed funds and free merchants to focus on growing their businesses.

Merchant cash advances do not require collateral or personal guarantees. For e-commerce merchants with few assets, MCAs provide an alternative to traditional financing that requires a secured loan.

Most importantly, MCA lenders typically approve applications in minutes and deposit funds within hours. When merchants need funds quickly, MCAs are one way to receive funds within a day. Loans and lines of credit can take weeks to process.


Most MCA lenders do not offer prepayment options. The total repayment amount is calculated as part of the initial agreement. However, merchants should check with their lenders to determine the available options. 

E-commerce merchants should research potential lenders. Because MCAs are not covered under the Truth in Lending Act, they are not required to present information unless asked. Merchants should ask questions until they have a clear picture of what the arrangement involves.

Some MCA lenders may include restrictions in merchant agreements. They may require merchants to use a specific processor and maintain existing operating hours to ensure payments are made. E-commerce merchants should review any restrictions before signing an agreement.

Get a Merchant Cash Advance

MCAs are a viable alternative to traditional financing, especially when e-commerce merchants lack the assets to secure loans or have a minimal financial history. Onramp has a transparent website to help e-commerce merchants understand the terms and conditions of their merchant cash advance products. There's no lengthy approval process because data can be accessed quickly. Contact us today to see how we can help your business succeed.