What is Merchant Cash Advance?

Full Definition

A merchant cash advance (MCA) is a form of business funding where a provider gives a lump sum in exchange for a share of the firm's future card takings. Instead of fixed monthly repayments, an agreed percentage is automatically deducted from each day's card transactions until the advance plus a fixed fee is repaid. This makes repayments rise and fall with trading volume, which can suit seasonal businesses such as cafes, shops, and salons that take most payments by card. Because the cost is expressed as a flat fee (a factor rate) rather than an APR, the effective annual cost can be high, and the absence of a fixed term means repayment can be slower than expected in quiet periods. MCAs are typically quick to arrange and require no asset security, but they are usually one of the more expensive forms of business borrowing. VAT on underlying sales is still due in the normal way, so businesses should budget for tax separately from MCA deductions.

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