Merchant cash advances

How does a merchant cash advance work?

A lender advances a lump sum, then takes an agreed percentage of your card sales (often daily or weekly), until the advance plus a fixed fee is repaid. There’s no traditional interest rate; the cost is built into the fee agreed upfront, and repayments naturally track your sales rather than sitting on a fixed schedule. Our merchant cash advance calculator lets you model the fee and repayment schedule against your actual card sales.

• 01Fit depends on the industry, and on how much time an owner has to manage a more traditional facility.
• 02Approval is fast, and requirements are usually lighter than most other finance.
• 03Retail and hospitality businesses often lean heavily on MCAs in their early growth stages, when they need capital to keep expanding but don’t yet have the trading history for cheaper structured debt.
• 04Asset security is rarely, if ever, required. The facility is secured against future card sales, not property or business assets.

Are merchant cash advances bad?

Not inherently. But they are more expensive than a business overdraft or line of credit, and that’s the trade-off to understand before you sign, not after. You’re paying a premium for speed, simplicity and minimal documentation. Used deliberately (a short-term bridge, a known and manageable cost against a clear return), an MCA can be exactly the right tool. Used as ongoing working capital because it’s easy to access, the cost adds up fast.

The advice is the same as for every product on this site: know what you’re comparing it against. If you have the time and trading history to arrange a cheaper facility, that’s usually the better call. If speed and low documentation matter more than shaving the rate, an MCA earns its cost. In practice that’s usually a café or restaurant drawing against its EFTPOS takings. A retailer with years of steady trade, buying stock, is usually better off with an overdraft.

Is a merchant cash advance secured or unsecured?

Neither, quite. In Andrew’s experience asset security is rarely required, because the facility is secured against your future card sales instead. That’s the difference from a term loan or larger line of credit, where security grows with the facility size.

Is a merchant cash advance the same as revenue-based lending?

Different in name, closely related in mechanics. Both repay as a share of what you bring in, not a fixed instalment. The practical difference is usually speed and documentation: an MCA is typically faster to arrange with less paperwork, tied specifically to card sales, while revenue-based lending tends to look at broader revenue and can offer more scale for an established business. Which costs less depends on your profile, so compare both before committing to either.

What does a merchant cash advance cost?

An MCA isn’t priced with an interest rate. It’s priced with a factor rate (a multiplier applied to the advance) and repaid through a holdback (also called a retrieval rate), which is a fixed percentage of your daily card takings.

For scale, the RBA business lending series for July 2026 put new small business variable loans at 7.07% p.a. and new fixed at 8.11%, and the RBA lifted the cash rate to 4.60% on 29 September 2026. Even the gentlest reading of the table below sits several times above that, and the gap is the price of speed and light documentation rather than a lender being unreasonable. The full conversion, what a factor rate works out to as an annual cost of funds against a published overdraft rate, is on the merchant cash advance vs overdraft comparison.

So a $50,000 advance at a factor rate of 1.20 means you repay $60,000. The $10,000 difference is the whole cost, and it doesn’t change no matter how fast or slow you repay. If your holdback is 12% of card takings, every $1,000 that goes through your terminal sends $120 to the lender until the $60,000 is cleared.

The part that catches people: repaying faster costs you more

Because the fee is fixed rather than accruing, a strong trading month doesn’t save you money. You just pay the same $10,000 over a shorter period. Expressed as an annual cost, that gets worse the better you trade. Same advance, same factor rate, different card turnover:

Worked on a $50,000 advance at a 1.20 factor rate, a $10,000 fixed fee. The annual equivalents are the fee scaled to a twelve-month period and are deliberately simple; the true cost of funds is higher again, because you’re repaying throughout rather than holding the full $50,000 for the whole term.

It’s the most important thing to understand before signing one, and it’s the opposite of how a term loan or overdraft behaves, where paying down early reduces what you pay. If your card takings are strong and reliable, that strength is what makes an MCA an expensive way to borrow. It’s usually a sign you’d qualify for something cheaper.

Ask any provider two questions before you sign: is the fee fixed or does early repayment reduce it (some providers do offer a discount, most don’t), and what happens to the holdback if takings fall. A percentage-based holdback flexes with revenue. A fixed daily debit doesn’t, and that matters most in the month you can least afford it. Our merchant cash advance calculator models the repayment period against your actual card turnover.

Card economics changed on 1 October 2026. The RBA removed surcharging on eftpos, Mastercard and Visa from that date, so a business that used to pass card fees on now carries them unless its prices rise. An MCA is repaid out of those same card takings. Before you sign one, work out your margin on card sales after fees, not just the factor rate.

When is a merchant cash advance not the right call?