What Is a Merchant Cash Advance?
A merchant cash advance (MCA) is not a loan. It is a purchase of your future credit card receivables at a discount. A funder advances you a lump sum, and in return, your credit card processor splits each day's card sales — sending a fixed percentage (the "holdback") to the funder and the rest to your business account.
Key characteristics of an MCA:
- Repayment method: Automatic percentage split of daily credit card sales
- Holdback rate: Typically 10% to 25% of daily card transactions
- Cost structure: Factor rate (e.g., 1.20 to 1.50), not an interest rate
- Payment flexibility: Payments go up and down with your sales volume
- Legal structure: Purchase agreement, not a loan contract
What Is an ACH Loan?
An ACH loan (sometimes called a short-term business loan or daily debit loan) is a financing product where a fixed dollar amount is automatically debited from your business bank account on a daily or weekly basis via the ACH (Automated Clearing House) network.
Key characteristics of an ACH loan:
- Repayment method: Fixed daily or weekly ACH debits from your bank account
- Payment amount: Same dollar amount every business day (e.g., $150/day)
- Cost structure: Can use factor rates or interest rates depending on the lender
- Payment flexibility: Fixed payments regardless of revenue fluctuations
- Legal structure: Loan agreement with defined repayment terms
MCA vs ACH Loan: Side-by-Side Comparison
| Feature | Merchant Cash Advance | ACH Loan |
|---|
| Repayment Method | % split of daily credit card sales | Fixed daily/weekly bank debit |
| Payment Flexibility | Adjusts with sales | Fixed amount |
| Requires Card Sales | Yes — card processing required | No — any revenue source |
| Cost Structure | Factor rate (1.10 – 1.50) | Factor rate or interest rate |
| Typical APR Equivalent | 40% – 150%+ | 30% – 100%+ |
| Funding Speed | 1 – 3 business days | 1 – 3 business days |
| Term Length | 3 – 18 months (variable) | 3 – 18 months (fixed) |
| Legal Classification | Purchase agreement (not a loan) | Loan agreement |
| Regulated as Loan | No (most states) | Yes — lending regulations apply |
| Min Credit Score | 500+ | 520+ |
| Best For | Card-heavy businesses (retail, restaurants) | Any B2B or cash-based business |
| Slow Season Risk | Low — payments drop with sales | High — fixed payments continue |
Repayment: The Critical Difference
The single biggest difference between an MCA and an ACH loan is how you repay.
MCA Holdback Example
Suppose your business processes $3,000/day in credit card sales and your holdback rate is 15%:
- Daily payment: $3,000 × 15% = $450
- On a slow day ($1,500 in sales): $1,500 × 15% = $225
- On a busy day ($5,000 in sales): $5,000 × 15% = $750
Your payment automatically adjusts. On slow days, you pay less. On busy days, you pay more. The total payback amount stays the same — only the timeline changes.
ACH Loan Fixed Debit Example
With a $50,000 ACH loan at 1.30 factor rate over 12 months:
- Total payback: $50,000 × 1.30 = $65,000
- Daily payment: $65,000 ÷ 252 business days = $258/day
- This amount does not change — whether your revenue is $500 or $5,000 that day, $258 is debited from your bank account.
Cost Comparison
Both products use factor rates, but the effective cost can differ significantly based on how quickly you repay:
- MCA cost variability: Because MCA payments flex with sales, high-revenue months mean faster payoff and potentially lower effective APR. Conversely, slow periods extend the repayment timeline.
- ACH loan cost predictability: Fixed payments mean you know exactly when the loan will be repaid and can calculate the precise total cost upfront.
- Renewal/refinance costs: Both products commonly offer renewals before full payback, which adds cost. Be cautious of early renewal offers.
Which Is Right for Your Business?
Choose an MCA if:
- Your business has significant credit card transaction volume
- Your revenue fluctuates seasonally and you need payment flexibility
- You want payments that automatically adjust to business conditions
- You operate a restaurant, retail store, or other card-heavy business
Choose an ACH Loan if:
- Your revenue comes from invoices, checks, or cash (not primarily cards)
- You prefer predictable, fixed daily payments for budgeting
- You want a clear end date for your repayment obligation
- You are a B2B company, service provider, or contractor
Not sure which is right for you? Our funding advisors can review your revenue mix, cash flow patterns, and business model to recommend the optimal product. Call us at (305) 384-8391 or apply online for a no-obligation assessment.
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Frequently Asked Questions
No. An MCA repays through a percentage split of daily credit card sales, while an ACH loan uses fixed daily or weekly debits from your bank account. They have different repayment structures, legal classifications, and regulatory frameworks.
Neither is inherently cheaper. Costs depend on the factor rate, term, and your specific deal. ACH loans sometimes carry slightly lower factor rates because the fixed payment structure reduces risk for the lender, but this varies by funder and your qualifications.
Traditional MCAs require credit card processing volume. If your business does not accept credit cards, an ACH loan is the appropriate alternative. Some funders market "MCAs" that are actually ACH loans — the distinction matters legally and practically.
Both MCAs and ACH loans are known for speed. Most applications are approved within 24 hours, and funding typically occurs within 1-3 business days of approval.
Neither typically requires physical collateral like real estate or equipment. Both generally require a personal guarantee and may include a UCC lien filing against business assets.
Technically yes, but this is essentially "stacking" — having multiple active funding positions. Stacking increases your daily payment burden and carries significant financial risk. We generally recommend consolidation over stacking.
MCAs tend to have slightly higher approval rates because they are purchase agreements rather than loans, and the flexible repayment structure reduces risk. However, both products are designed for businesses that may not qualify for traditional bank loans.
Most MCA and ACH lenders perform a soft credit pull during application, which does not impact your score. However, defaulting on either product can lead to collection actions that may eventually affect your credit.