Merchant Cash Advances for Construction Companies: Why They Rarely Make Sense

Merchant cash advances (MCAs) are one of the most accessible forms of business financing. Fast approval, minimal documentation, available even with poor credit. For businesses with daily credit card sales, MCAs can work — expensive, but functional.

Construction companies are not those businesses. The fundamental mechanics of MCAs clash with how construction revenue works, making them a poor fit for most contractors. Let me explain why.

How Merchant Cash Advances Work

An MCA is not technically a loan — it is a purchase of future sales. Here is the structure:

• Advance amount — The lump sum you receive, typically $10,000-$500,000.
• Factor rate — The multiplier determining total repayment (1.2-1.5x typical).
• Repayment amount — Advance x factor rate. A $100,000 advance at 1.4 = $140,000 repayment.
• Daily or weekly holdback — Percentage of credit card sales or fixed ACH debit.
• Term — Until repaid, typically 4-18 months.

Why MCAs Do Not Match Construction

MCAs were designed for businesses with consistent daily credit card revenue — restaurants, retailers, service businesses. Construction has a fundamentally different revenue pattern:

When an MCA provider cannot split credit card sales (because you do not have meaningful card volume), they use fixed daily or weekly ACH debits instead. This creates a brutal mismatch: fixed outflows against variable, project-based inflows.

The Daily Debit Problem

A typical MCA for a construction company might look like this:

• Advance: $150,000
• Factor rate: 1.38
• Total repayment: $207,000
• Daily payment: $1,150 (180 business days)
• Monthly cash drain: ~$25,000

Now consider construction cash flow. You might collect $80,000 in week one, nothing in weeks two and three, then $200,000 in week four. That daily $1,150 comes out regardless — $5,750 per week whether you collected or not.

When you hit a slow collection period, those daily debits do not pause. You drain working capital, potentially triggering NSF fees or overdrafts, damaging banking relationships, or forcing you to take another advance to cover the first one.

When Contractors Take MCAs Anyway

Despite the mismatch, some construction companies do take MCAs. The reasons are usually problematic:

• Urgent cash need — Materials supplier demanding payment, payroll coming due, no other options.
• Credit issues — Banks and traditional lenders declined, MCA was the only yes.
• Speed — Need funds in days, not weeks.
• Lack of awareness — Did not understand the true cost or alternatives.

In genuine emergencies, an MCA might be the only option. But too often, contractors take MCAs because they did not plan ahead or did not explore alternatives thoroughly. The cost of that convenience is substantial.

The True Cost Illustrated

Let us compare a $150,000 financing need across products:

The MCA costs $57,000 for 9 months of money. A bank line of credit costs $15,000 for the same access. That $42,000 difference — every year — is money that does not go to equipment, employees, or owner profit.

Better Alternatives for Construction

Almost any traditional financing product works better for construction than MCAs:

• Business line of credit — Draw when needed, pay when collected. Interest only on outstanding balance.
• Invoice factoring — Advance against specific invoices. Aligns with construction billing.
• Equipment financing — For equipment needs. Equipment as collateral means reasonable rates.
• Term loans — Fixed payments, but monthly (not daily) and typically much lower cost.
• SBA loans — Best rates and longest terms for those who qualify.
• Contract financing — Advances against awarded contracts. Purpose-built for construction.

If You Already Have an MCA

Contractors stuck with existing MCAs have limited options:

• Refinance — Some lenders specialize in refinancing MCA debt into term loans. Rates will still be high, but payments become manageable.
• Negotiate — Some MCA companies will restructure if you demonstrate hardship. Not guaranteed, but worth trying.
• Accelerate payoff — If cash flow allows, paying off faster reduces total cost.
• Do not stack — Taking another MCA to cover the first almost always makes things worse.
• Plan the exit — As the MCA pays down, establish a line of credit or other facility to avoid repeating the situation.

MCA refinancing typically involves rates of 20-35% — still expensive, but far better than 60-80% effective rates on MCAs. The monthly payment structure alone can provide relief.

When MCAs Might Work

In rare situations, an MCA could make sense for a construction company:

• Genuine emergency — All other options exhausted, losing the business is the alternative.
• Very short-term — You have a large payment arriving in 30 days and just need to bridge.
• High-margin opportunity — A project opportunity with exceptional margins that justifies expensive money.
• Last resort before losing a contract — The cost of the MCA is less than losing the work.

Even in these cases, understand what you are paying. A $50,000 MCA at 1.35 factor rate costs $17,500 in fees. If the opportunity justifies that cost, proceed with eyes open. If you are taking an MCA just to make payroll on a marginally profitable project, you are paying expensive money to work for free.

The Honest Assessment

I would be doing a disservice to construction business owners if I pretended MCAs were a good option for the industry. They are not. The product design does not match construction cash flow, the cost is extreme, and the daily payment structure creates unnecessary stress and risk.

If you are considering an MCA, please explore alternatives first:

• Can you negotiate extended terms with suppliers?
• Is invoice factoring available for outstanding receivables?
• Will an equipment lender finance that purchase instead?
• Is there a bank or credit union that works with contractors?
• Can you accelerate any customer collections?

MCAs should be the last resort, not the first call. The construction financing market has better options for those willing to look.

Liminal can help you compare financing options that actually fit construction cash flow. Our marketplace is free, takes about 2 minutes, and shows you offers from multiple lenders without impacting your credit score.