Loan for Business

What is Merchant Cash Advance (MCA)?

By Tata Capital
05 January 2026
8 mins read
2712

Quick and flexible funding is essential for growth in today’s fast-moving business landscape. A Merchant Cash Advance (MCA) provides businesses with immediate capital by leveraging future sales, making it a practical option for those needing fast access to funds.

With a streamlined approval process and fewer restrictions than traditional loans, MCA advances help businesses manage cash flow and seize new opportunities. This article discusses the merchant cash advance’s meaning, how it works, and its benefits.

What is a Merchant Cash Advance?

An MCA cash advance for merchants is a funding option where businesses receive a lump sum amount, which is repaid through future debit or credit sales percentages. Unlike traditional loans with fixed monthly payments, collateral requirements, or standard business loan interest rates, MCA repayments adjust dynamically based on daily or weekly sales. MCA in businesses also does not get reported to credit bureaus, meaning they don’t help build a credit history or score.

How does an MCA work?

The process of obtaining an MCA involves several key steps:

1. Application and approval

Businesses apply by providing sales history. The process is fast since approval is based on revenue rather than credit scores. It’s often completed within a day with minimal paperwork.

2. Funding

The lender evaluates sales performance and financial health to determine eligibility. Once approved, these funds are deposited directly into the business’s account.

3. Repayment

A fixed percentage of sales is automatically deducted for repayment. Higher sales mean larger repayments, while slower periods reduce repayment, easing financial pressure.

Merchant Cash Advance repayment, fees & charges

– Factor Rate: MCAs use a factor rate instead of a traditional interest rate to determine the total repayment amount. For example, if a business takes a ₹5,00,000 advance with a 1.3 factor rate, the total repayment will be ₹6,50,000.

– Additional Fees: Some MCA providers charge processing fees, administrative costs, or account maintenance charges. It’s essential to review these charges before opting for an MCA.

– Early Repayment Options: Certain MCA providers allow early repayment, which may help businesses save on costs, though terms vary.

– Cash Flow Considerations: Since repayments are based on daily sales, businesses benefit from a structure that adjusts with revenue fluctuations, making repayment more manageable.

What are the benefits of cash advances for merchants?

MCAs offer several advantages that make them an attractive financing option:

1. Quick access to capital

The fast approval and funding process ensures that merchants can obtain a cash advance when needed, helping businesses cover urgent financial needs without the delays of traditional financing.

2. Flexible repayment structure

Repayments adjust based on sales, so businesses pay more when revenue is high and less during slower periods. This flexibility helps manage cash flow effectively and reduces financial strain.

3. No collateral required

With MCAs, businesses can access capital without pledging assets as collateral, reducing risk exposure and offering greater financial flexibility.

4. Simplified approval process

Since approval depends on sales performance rather than credit scores, businesses with a limited credit history or past challenges can still secure funding.

What are the potential drawbacks of MCAs?

While MCAs offer notable benefits, it’s essential to be aware of potential drawbacks:

1. Higher financing costs

MCAs typically use factor rates instead of standard interest rates, making them more costly than traditional loans.

2. Impact on cash flow

Daily or weekly MCA deductions can strain cash flow, especially for businesses with tight margins.

3. Fixed repayment amount

The total repayment amount is fixed, so early repayment does not reduce the overall cost, regardless of sales performance or timing.

Also,read: What is a Business Loan?

Who should consider an MCA?

1. Businesses with consistent card sales

Retailers, restaurants, and e-commerce platforms processing high credit/debit card transaction volumes can benefit from MCA’s flexible structure.

2. Seasonal enterprises

Businesses experiencing seasonal fluctuations in sales, such as tourism-related services, holiday-centric retailers, or event-based firms, may find an MCA beneficial for maintaining cash flow.

3. Entities requiring immediate funds

Businesses with urgent financial needs that require quick funding and cannot wait for traditional loan approvals may find an MCA a suitable solution.

What is the difference between Merchant Cash Advances vs. business loans?

Understanding the distinctions between MCAs and traditional business loans is crucial for informed decision-making:

Aspect	Merchant cash advance	Traditional business loan
Repayment	Percentage of daily/weekly sales; adjusts with revenue	Fixed monthly payments
Cost	Typically higher due to factor rates	Lower interest rates
Approval	Fast approval, minimal paperwork	Longer approval process, credit checks required
Collateral	No collateral is required	Often requires collateral

MCA in finance: Full form, meaning & history for Indian businesses

MCA in finance stands for Merchant Cash Advance, a funding option designed to support Indian businesses with quick, short-term capital. Unlike traditional loans, MCA in finance is based on future sales rather than fixed EMIs.

The concept evolved globally in the early 2000s to help small merchants lacking collateral or strong credit histories. In India, it gained relevance with the rise of digital payments and MSMEs.

So, what is merchant loan? It’s a flexible, revenue-linked financing solution tailored for growing businesses needing fast liquidity.

Eligibility & documents required for merchant loans (MCA) in India

Eligibility criteria:

Business seeking a merchant loan for short-term working capital

Operational business with minimum 6–12 months vintage

Regular POS, UPI, or card-based sales under MCA in finance

Stable and verifiable monthly turnover

Active current account in the business name

Indian citizen proprietors/partners/directors

Documents required:

KYC documents (PAN, Aadhaar)

Business PAN and GST registration (if applicable)

Last 6-12 months bank statements

POS or payment gateway transaction reports

Address proof of business premises

Cancelled cheque

These requirements make MCA in finance accessible for MSMEs with limited collateral.

Also,read: Know your Business Loan Eligibility

How to apply for a Merchant Cash Advance (Online/Offline)

Step 1: Identify an NBFC or fintech offering merchant loan products under MCA in finance.

Step 2: Check basic eligibility such as business vintage, turnover, and digital payment history.

Step 3: Apply online through the lender’s website or submit an offline application at a branch.

Step 4: Upload or provide KYC, bank statements, and POS or gateway transaction records.

Step 5: Lender evaluates cash flow and sales patterns to determine advance amount.

Step 6: After approval, the merchant loan is credited to the business account, with repayments linked to daily sales.

Alternatives to merchant loan: Revenue-based financing, business loans & invoice factoring

Businesses seeking funding beyond a merchant loan can explore several effective alternatives based on cash flow and repayment flexibility.

Revenue-based financing allows companies to raise capital and repay a fixed percentage of monthly revenue, making it suitable for fluctuating sales cycles.

Traditional business loans offer structured EMIs, longer tenures, and lower overall costs compared to MCA in finance, but usually require stronger credit profiles.

Invoice factoring helps B2B businesses unlock working capital by selling unpaid invoices to financiers, improving liquidity without taking fresh debt.

While MCA in finance suits high-volume merchants needing quick funds, alternatives like revenue-based financing and invoice factoring provide better control over margins and long-term financial planning.

Tips before you apply for MCA: Key factors to consider

Assess daily cash flow to ensure sales can support frequent deductions common in MCA in finance

Compare the total repayment amount instead of focusing only on the upfront merchant loan amount

Check deduction percentage and settlement terms linked to card or UPI sales

Review foreclosure, renewal, and penalty clauses before signing

Evaluate how repayments may affect profit margins and liquidity

Keep bank statements and POS transaction records ready for faster processing

Compare MCA with traditional loans or factoring options

A basic understanding of what is merchant loan helps avoid cash flow stress later

How to calculate true cost of Merchant Loan Advance (MCA)

Step 1: Note the advance amount received and the total repayment amount agreed.

Step 2: Calculate the difference to find the absolute cost of the advance.

Step 3: Identify the repayment period based on daily or weekly sales deductions.

Step 4: Convert the total cost into an annualised rate to compare with loans.

Step 5: Factor in fees, processing charges, and impact of faster deductions.

Step 6: Compare this effective cost with other financing options before deciding.

In conclusion

A Merchant Cash Advance is a practical financing option for businesses that need quick capital with flexible repayment terms. Since repayments adjust based on sales, MCAs provide a dynamic solution that moves with business revenue cycles. However, evaluating the costs involved and ensuring this funding aligns with the company’s financial strategy and ability to repay is crucial.
Are you looking for financing for your business? Apply for a business loan with us at Tata Capital. We offer flexible loan tenures, minimal documentation required, no collateral, doorstep services, and competitive business loan interest rates. To learn more, visit the Tata Capital website or download our app today!

FAQs

What does MCA mean in finance?

In finance, MCA is Merchant Cash Advance. It is short-term funding for businesses where lenders give a lump sum amount, which is repaid through a percentage of the merchant's sales.

What is the percentage of merchant cash advance?

The repayment percentage of merchant cash advances depends on many factors, such as the lender, the borrower's previous sales, and more. It usually ranges between 5% to 20%.

How does MCA work?

MCAs give businesses a lump sum from a lender, repaid as a percentage of daily or monthly sales. Payments adjust based on revenue, offering flexibility but often at a high cost.

Who is eligible for MCA?

Businesses with a proven sales history, consistent credit/debit card transactions, and good credit scores are eligible for MCAs. A good credit history is unnecessary, making it a good option for new businesses.

What is a merchant loan and how does a merchant cash advance (MCA) work in India?

A merchant loan provides upfront funds repaid via daily sales deductions. It explains what is merchant loan in practice, where MCA in finance links repayment directly to business revenue.

What is the full form of MCA in finance?

In MCA in finance, MCA stands for Merchant Cash Advance, a funding method where a merchant loan is repaid through a percentage of future card or UPI sales.

How is a merchant loan different from a regular business loan?

A merchant loan under MCA in finance has no fixed EMIs, unlike traditional loans. Knowing what is merchant loan highlights its sales-based, short-tenure repayment structure.

What eligibility and documents are required for merchant loan or MCA approval?

Eligibility includes business vintage and digital sales history. Documents for a merchant loan under MCA in finance include KYC, bank statements, and POS reports, explaining what is merchant loan access.

Are merchant loans and MCAs suitable for small businesses with low credit scores?

Yes, a merchant loan can suit low-credit businesses since MCA in finance focuses on sales, not scores.

What are the risks and drawbacks of merchant cash advances for SMEs?

High effective cost, daily deductions, and margin pressure are risks. Understanding what is merchant loan helps SMEs judge whether MCA in finance cash flow impact is manageable.

Can early repayment reduce my MCA cost?

Early repayment may reduce overall cost in some merchant loan agreements, but MCA in finance terms vary. Always review contracts to understand what is merchant loan pricing.

What are some alternatives to merchant loan or MCA funding in India?

Alternatives to a merchant loan include business loans, revenue-based financing, and invoice factoring.

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