Before understanding an MCA Buyout Loan, it’s important to clearly understand what a Merchant Cash Advance (MCA) is and how it works.
A Merchant Cash Advance is a form of business funding where a company receives a lump sum of capital and agrees to repay a fixed amount from future business revenue. For example, a business may receive $10,000 upfront and agree to repay $13,000 over time. Although this structure looks very similar to a loan, MCAs are legally classified as advances, not traditional loans—and that distinction matters.
How Merchant Cash Advances Originally Worked
When MCAs were first introduced, repayment was tied directly to a percentage of future sales, typically credit card revenue. This made MCAs attractive to industries like restaurants and retail businesses that struggled to qualify for bank loans but had consistent card transactions.
Example:
A business receives $10,000 and agrees to repay $13,000, with 10% of monthly credit card sales going toward repayment.
Scenario 1:
1. Monthly sales = $5,000
2. Repayment = $500 per month
3. Time to repay = ~26 months
Scenario 2:
1. Monthly sales = $10,000
2.Repayment = $1,000 per month
3. Time to repay = ~13 months
Even though the repayment amount is the same, the effective APR changes drastically depending on sales volume.
The Shift to Daily MCA Payments (ACH Holdbacks)
Over time, the MCA industry shifted away from variable percentage-based payments to fixed daily payments, commonly referred to as a holdback. These payments are usually collected through ACH (Automatic Clearing House) debits directly from the business bank account.
This shift made repayment schedules more predictable and allowed funders to calculate APR more accurately. However, most MCA providers still avoid discussing APRs openly—and for two key reasons:
Regulatory and legal classification
If an MCA is openly presented as a loan with interest, it becomes subject to stricter lending regulations and tax rules. That’s why MCA agreements explicitly state they are not loans.
Extremely high APRs
MCA APRs can range anywhere from 10% to over 150%, depending on terms and repayment speed. Presenting these numbers upfront could discourage borrowers.
Because of this, even companies that also offer traditional loans often label MCA products strictly as “advances.
Why Businesses Choose Merchant Cash Advances
Most business owners consider an MCA when:
1. They’ve been declined by banks or traditional lenders
2. They need fast access to cash
3. Time is more valuable than cost
In these cases, the decision shouldn’t be based solely on percentage or APR. Instead, it’s about:
1. Opportunity cost of not getting funding
2. Speed of access to capital
3. Immediate business needs
If friends, family, and banks aren’t options, an MCA may be the fastest available solution.
Benefits of a Merchant Cash Advance
1. Unsecured Funding
Most MCAs are unsecured, meaning no physical assets are pledged as collateral. The funder assumes significant risk, which explains the higher cost. That said, business owners are typically required to sign a personal guarantee. If the advance defaults, the funder may pursue repayment personally, and your credit score can be affected.
2. Fast Approval and Funding
MCAs are known for speed. In many cases, funding can be completed in less than one week, provided all documentation is ready.
Commonly required documents include:
1. 3–6 months of business bank statements
2. Previous year’s tax return
3. Certificate of Incorporation
4. Valid driver’s license
5. Completed application
6. Proof of tenancy (lease or mortgage)
Being organized with these documents can significantly accelerate approval.
What Is an MCA Buyout Loan?
An MCA Buyout Loan allows a business to pay off one or multiple merchant cash advances by replacing them with a more affordable financing option—often with:
1. Lower monthly payments
2. Longer repayment terms
3. Improved cash flow
For businesses overwhelmed by daily ACH withdrawals, an MCA buyout can be a critical step toward financial stability.
Thinking of Starting or Growing a Business?
Now is the time to take action. As new opportunities continue to emerge, many entrepreneurs are launching or restructuring businesses to move forward with confidence. If funding challenges are holding you back, there are alternatives available—including Small Business Loans and No-Doc Loan options for qualified applicants.
Unsecured Finances has over 10 years of experience helping business owners secure funding solutions, including:
1. Unsecured Business Loans
2. MCA Buyout Loans
3. Start-Up Business Specialty Loans
4. Unsecured No-Documentation Loans
5. Business Lines of Credit from $10,000 to $500,000
6. Funding solutions with no asset requirements
Apply on our website to find out if you qualify, or call today for a free consultation: 1-888-294-2584
