Merchant Cash Advances for Manufacturing Businesses: Why They Almost Never Fit

MCAs and Manufacturing: A Poor Match

Merchant cash advances are designed around daily credit card sales—a revenue model that doesn't describe most manufacturing businesses. Manufacturers typically invoice customers on terms, receive wire transfers or checks, and process minimal card transactions.

This fundamental mismatch makes MCAs unsuitable for most manufacturing operations.

Why MCAs Don't Fit Manufacturing

MCAs fail manufacturers on multiple levels:

• Payment structure mismatch: MCAs collect from card sales; manufacturers invoice B2B
• Cash flow timing: Manufacturing cycles don't match MCA daily payments
• Cost vs. margins: MCA costs can exceed thin manufacturing margins
• Better alternatives exist: Asset-based lending, factoring serve manufacturers better

The Daily Payment Problem

MCAs require daily payments—either a percentage of card sales or fixed daily ACH withdrawals. Manufacturing cash flow is lumpy: large payments arrive when customers pay invoices, often 30-60 days after shipment.

Fixed daily payments during periods between customer payments drain cash reserves and create stress.

Cost Impact on Manufacturing Margins

Manufacturing operates on tight margins—often 10-20% net. MCA costs of 30-50%+ annualized can consume your entire profit margin on the capital borrowed.

A $100,000 MCA costing $35,000 in fees might eliminate profit on $350,000 or more in revenue, depending on your margins.

Better Alternatives for Manufacturers

Manufacturing businesses have access to better-suited financing:

• Invoice factoring: Converts receivables to immediate cash
• Asset-based lending: Leverages equipment, inventory, receivables
• Equipment financing: For equipment-specific needs
• SBA loans: Best rates for qualified manufacturers
• Lines of credit: Flexible working capital access

Invoice Factoring: The MCA Alternative

If you need immediate cash from pending customer payments, invoice factoring serves the same purpose as MCAs at lower cost. You sell invoices for immediate cash; the factor collects from your customers.

Factoring aligns with manufacturing cash flow—you're advancing against actual invoices rather than hypothetical future sales.

Asset-Based Lending

Manufacturers have assets—equipment, inventory, receivables. Asset-based lenders provide credit facilities secured by these assets at rates far below MCA costs.

If traditional lenders won't extend sufficient credit based on financial statements alone, asset-based lending may unlock capacity.

When MCAs Are Considered

If a manufacturer considers an MCA, it's usually because traditional options have been exhausted, there's an urgent need without other alternatives, or there's a misunderstanding of better options.

Before accepting an MCA, ensure you've truly explored all alternatives. The cost difference is substantial.

The Bottom Line

MCAs don't fit manufacturing. The payment structure, cost level, and business model mismatch create problems rather than solving them. Manufacturing businesses have better alternatives—factoring, asset-based lending, equipment financing, and traditional credit—that align with how manufacturers actually operate.

Invest time finding the right financing structure rather than accepting an MCA out of convenience.