What is a Merchant Cash Advance?
A merchant cash advance (MCA) isn’t really a loan, but rather a cash advance based upon the credit card sales deposited in a business’ merchant account. A business owner can apply for an MCA and have funds deposited into a business checking account fairly quickly—sometimes as quickly as 24 hours after approval.
MCA providers evaluate risk and weight credit criteria differently than a banker or other lenders. They look at daily credit card receipts to determine if a business can pay back the advance in a timely manner. As a result, rates on an MCA can be much higher than other financing options so it’s critical you understand the terms you’re being offered so you can make an informed decision about whether or not an MCA makes sense to meet your needs.
What is Holdback?
Within the context of an MCA, the term “holdback” is probably the least familiar. The holdback amount is the percentage of daily credit card sales applied to your advance. The holdback percentage (somewhere between 10 percent and 20 percent is typical) is usually fixed until the advance is completely repaid.
Because repayment is based upon a percentage of the daily balance in the merchant account, the more credit card transactions a business does, the faster they’re able to repay the advance. And, should transactions be lower on any given day than expected, the draw from the merchant account will be less. In other words, the payback is typically relative to the incoming credit card receipts.
The Difference Between Holdback Amount and Interest Rate
There’s a difference between the interest rate a business owner is charged for the advance and the holdback amount. Most MCA providers charge what’s called a “factor” rate. Unlike a traditional term loan, the rate isn’t amortized over the course of the advance. A typical factor rate for an MCA could range between double and triple digits depending upon the provider.
Is a Merchant Cash Advance Right for Your Business?
While an MCA might make sense for a business that needs cash quickly to take advantage of a short-term opportunity, it’s critical to make sure the costs of the merchant cash advance otherwise make financial sense for the business. Because qualifying criteria is much less stringent than traditional small business lenders, an MCA comes with a premium cost. Nevertheless, there are business owners who successfully use this option to access capital for their businesses.
NOTE: Because a merchant cash advance is not a loan and providers do not report your payment history to the business credit bureaus, it does not help build or strengthen a business credit profile. Additionally, because rates vary from provider to provider, and can be much higher than other types of financing, it’s important to understand all the terms before signing on the dotted line.
Is There an Alternative to a Merchant Cash Advance?
The short answer is yes. Many small business owners find a short-term business loan to be an alternative. And, with a strong credit profile, others are able to leverage a small business line of credit to meet short-term needs for additional cash flow.
A short-term loan from OnDeck, for example, could have a term as short as a few months and offer terms more familiar to a small business borrower. Depending upon the nature of the loan, periodic payments will be either daily or weekly, allowing the small business owner to spread the burden of debt service throughout the month, rather than requiring one larger payment at the end of the month.
OnDeck also reports your good credit history to the appropriate business credit bureaus, so may even help strengthen your business credit profile.

What type of loan makes sense for your business?
Financing options to help you grow your business
If you’ve ever heard the adage, “It takes money to make money,” you must be a small business owner. Fortunately, there are more small business loan options available today than ever before—you just need to know where to look and what to look for. You don’t need to be a financing expert to build a successful business, but you do need to consider all the business loan options available to determine which one is best to meet your business need.
Unsecured Small Business Loans
An unsecured small business loan is simply a loan from a lender that does not require any form of collateral from a business or a business owner. This is based solely upon the creditworthiness of the applicant.
Many small business owners are interested in a loan for their business but don’t have the specific collateral a bank may require, such as specifically-identified real estate, inventory or other hard assets. Fortunately, there are lenders like OnDeck that do not require that their loans be secured by specific collateral, relying instead on a general lien on the assets of the business. These may be good options for many businesses.
Secured Small Business Loans
Banks generally prefer secured—rather than unsecured—business loans. Secured loans are loans that are backed with some sort of collateral like real estate, equipment, or other valuable business assets the bank can seize and sell if the loan is not repaid.
Banks (or other lenders that require specific collateral) commonly determine what they refer to as the loan-to-value ratio of your collateral based upon the nature of the asset. In other words, your banker may allow you to borrow against 75 percent of the value of appraised real estate or 60 percent to 80 percent of the value of what they call ready-to-go inventory. Because lenders might consider their loan-to-value ratios differently, you’ll need to ask any potential lender how they intend to set that value.
Small Business Loans for Different Industries
As a business owner, your needs may be industry-specific such as ordering kitchen supplies upfront or bridging cash flow while you wait for insurance reimbursement. At OnDeck, we understand and we offer tailored loan options (with multiple loan types, amounts, and repayment terms), so you can get a small business loan best suited for your industry and business. Here are some of the most common industries we work with and the small business financing options available to them.