The Pros and Cons of Merchant Cash Advances

A merchant cash advance (MCA) provides a small business with access to working capital to purchase new equipment, meet payroll, cover expenses and potentially expand the business. By understanding the pros and cons of merchant cash advances, you can determine whether an MCA is right for your business. At, we work with businesses that need merchant cash advance assistance. Has your business experienced a downturn? Are you at risk of defaulting on an MCA? Have you signed a personal guarantee or Confession of Judgment to obtain an advance? can help. Contact our merchant cash advance defense attorney today by completing the convenient intake form

What Is An MCA? – Merchant Cash Advance Defense Attorney

Unlike a business loan that comes with a set repayment plan and interest charges, a merchant cash advance is based on a predetermined percentage of your future debit and credit card sales. The merchant receives an upfront sum of money, minus certain fees, in exchange for a portion of future sales, and the advance is repaid through fixed daily debits directly from the merchant’s bank account.

Pros of Merchant Cash Advances

A merchant cash advance provides fast access to funds when traditional business credit is not available. Business loans typically require good credit, an established history while MCA providers have less stringent credit criteria. Moreover, the approval process for a business loan can take weeks or months. Once you are approved for an MCA, funds are available within 24 to 48 hours. 

Unlike a business loan, an MCA does not require fixed monthly payments. The advance is paid back from a fixed percentage of future sales, regardless of how low or high those sales are. Because sales tend to fluctuate over time, a business may not be able to make the monthly installments on a bank loan. 

Finally, a bank loan typically requires collateral which is not the case with a merchant cash advance. The funder considers your current sales to determine how much to advance, but there is a catch: MCA providers usually require personal guarantees in order to advance the funds. 

Cons of Merchant Cash Advances

Despite the benefits of a merchant cash advance, there are disadvantages. First, an MCA is an expensive form of financing that involves higher rates and fees. Unlike an interest rate for a bank loan, a merchant cash advance is based on a factor in the range of 1.2 to 1.5. When a factor rate is converted into an APR (annual percentage rate), the figure can rise into the triple digits. 

Another drawback of an MCA is the holdback amount, which is the percentage of daily sales the funder takes from your daily credit card receipts to repay the advance. This could result in a cash-flow shortfall and jeopardize the future of your business. 

Finally, an MCA agreement will typically require you to sign a personal guarantee and a Confession of Judgment (COJ). A personal guarantee is one in which you pledge your personal assets (home, car, bank accounts) to secure the advance. If you default on an MCA, the funder will move to levy those assets.

A COJ is an agreement whereby you accept liability for the cash advance and waive any legal defenses in the event of default. If you experience a business downturn and cannot meet the repayment terms of the MCA, the funder can quickly file a judgment and seize the business assets.

Why You Need a Merchant Cash Advance Defense Attorney to Weigh the Pros and Cons

A merchant cash advance can provide your business with quick access to working capital, but this type of alternative funding is risky. If you default on an MCA, you may be forced into a business bankruptcy, while your personal assets will still be at risk. At the same time, an MCA agreement typically includes a reconciliation clause which requires the funder to restructure the payment plan if you experience a business downturn or receivables shortfall. 

This is where can help. Our experienced debt relief specialists and merchant cash advance attorneys will negotiate with your MCA provider to reconcile your cash advance. If the funder refuses to negotiate the payment terms, we will take them to court for breach of contract. Above all, we will work closely with you to protect your business and personal assets.

Contact Today

Whether you are weighing the pros and cons of a merchant cash advance or you are already struggling under the terms of an MCA agreement, you need the informed representation we provide. Our team knows the ins and outs of merchant cash advances and has a proven history of protecting reconciling MCAs. We also offer a subscription service to provide ongoing merchant cash advance assistance. Contact our office today by completing the convenience intake form, our debt relief specialists are available 24/7.