Merchant Cash Advances for Medical Practices: A Poor Fit for Healthcare

Merchant cash advances (MCAs) provide fast funding in exchange for a percentage of future sales. For businesses with high credit card volume — restaurants, retail stores, salons — MCAs can work as short-term financing. But medical and dental practices are fundamentally different, and MCAs are usually a poor fit.

This is one of the rare articles where I am going to tell you that a financing product probably is not right for your industry. Here is why.

How Merchant Cash Advances Work

First, a quick overview of MCA structure:

• Advance amount — You receive a lump sum, typically $10,000-$500,000
• Factor rate — You owe back the advance multiplied by a factor (e.g., 1.3x means you repay $130,000 on a $100,000 advance)
• Repayment method — Daily or weekly automatic deduction from credit card processing
• Split percentage — Typically 10-20% of daily credit card sales goes to repayment
• No fixed term — Repayment duration depends on your sales volume

The MCA model assumes significant daily credit card volume with payments automatically flowing through a merchant processor. This is where healthcare practices diverge from the typical MCA customer.

The Healthcare Revenue Model Problem

Medical and dental practices have a fundamentally different payment structure:

The Math Does Not Work

Let's work through a real example:

• Practice monthly revenue: $150,000
• Credit card transactions: $22,500 (15% of revenue)
• MCA advance: $50,000
• Factor rate: 1.35 (repay $67,500)
• Split percentage: 15% of daily cards
• Daily card sales: approximately $750
• Daily MCA payment: approximately $112.50
• Repayment timeline: approximately 600 days (20 months)

At 1.35x over 20 months, the effective APR exceeds 40%. And that assumes consistent card volume. If card transactions dip (summer slowdown, patients using FSA/HSA instead of cards), repayment stretches further.

When MCAs Might Apply (Rare Cases)

There are limited scenarios where an MCA could work for healthcare:

• High elective/cosmetic volume — Practices with substantial patient self-pay at point of service
• Cash-pay practices — Concierge medicine, cosmetic dentistry, plastic surgery with high card volume
• Hybrid models — Practices with significant retail components (med spa, optical dispensing)
• Emergency bridge funding — When no other options exist and survival is at stake

Even in these cases, better alternatives usually exist. The convenience and speed of MCAs come at a substantial cost premium.

Better Alternatives for Medical Practices

Healthcare practices have access to financing options that work better with the insurance reimbursement model:

Red Flags: When MCA Providers Target Healthcare

Some MCA providers aggressively market to healthcare practices. Watch for these warning signs:

• Ignoring your payment model — Pushing MCA without understanding your revenue sources
• Obscuring true cost — Quoting factor rates without explaining effective APR
• Pressure tactics — Creating urgency around "limited time" offers
• Stacking suggestions — Recommending multiple MCAs simultaneously
• Daily bank account access — Requiring ACH access to operating account as alternative to card split

If You Are Considering an MCA Anyway

If you are exploring MCAs despite the poor fit, at least understand the true cost:

• Calculate effective APR — Factor rate × (365 ÷ expected repayment days) gives approximate annualized cost
• Model cash flow impact — Project daily/weekly payments against your actual bank balances
• Understand the holdback — What percentage of transactions/deposits will be withheld?
• Review the contract — Look for confession of judgment clauses, personal guarantee terms
• Have an exit plan — How will you refinance out of this expensive debt?

In most cases, healthcare practices can find more appropriate financing. Even practices with credit challenges often qualify for equipment financing (secured by the equipment) or healthcare-specific lending programs.

The Bottom Line

Merchant cash advances are designed for businesses with high daily card volume and tight margins where speed outweighs cost. Medical and dental practices have the opposite profile: insurance-based revenue, professional cash flow, and access to better financing options.

Unless you operate a primarily cash-pay cosmetic or elective practice, MCAs should be a last resort — and even then, explore every alternative first.