How MCA Repayment Works

Merchant Cash Advances (MCAs) have become a popular funding option for small and medium-sized businesses looking to secure working capital without traditional loans. Unlike conventional financing methods that require collateral or credit checks, MCAs are based on future sales revenue. This makes them an attractive choice for businesses with fluctuating cash flow. In this blog post, we’ll explore how MCA repayment works, focusing on holdback percentages, daily payments, and the concept of revenue-based repayment.

Understanding Holdback Percentages

At the core of M

Understanding Holdback Percentages

At the core of MCA repayment is the holdback percentage, which represents a portion of the merchant’s future revenues that are set aside to repay the loan. This percentage typically ranges from 10% to 30%, depending on factors such as the borrower’s creditworthiness, industry, and the lender’s risk assessment. For instance, a tech startup with high growth potential might be offered a lower holdback rate of 15%, while a more established retail business could face a higher rate of 25%.

The holdback percentage is calculated based on the merchant’s net revenue after deducting expenses such as cost of goods sold (COGS), operating costs, and taxes. This ensures that only the profit generated by the business is used to repay the loan, providing a fair and sustainable repayment mechanism. For example, if a business has a monthly net revenue of $50,000 and a holdback