The Only 3 Scenarios Where a Merchant Cash Advance Might Make Sense

Throughout our guides on merchant cash advances, we've emphasized the risks and costs. That's because MCAs are generally expensive products that have contributed to financial difficulties for many businesses. But we believe in giving business owners complete information, which means acknowledging that MCAs occasionally have legitimate uses.

Here are the only three scenarios where an MCA might make sense — and in each case, we'll show you the math that would need to work.

Scenario 1: A Time-Sensitive, High-ROI Opportunity

The most legitimate use of an MCA is to fund a specific opportunity with a clear, high return that exceeds the MCA's cost. The opportunity must be time-sensitive enough that slower financing isn't an option, and the returns must be highly confident.

In this example, the MCA makes financial sense because the inventory discount ($30,000) substantially exceeds the MCA cost ($12,500). The business comes out $17,500 ahead.

Critical requirements for this scenario to work:

• The ROI must be highly confident. 'I think this inventory will sell' is not good enough. You need high certainty.
• The opportunity must be genuinely time-limited. If you could wait 2 weeks for a cheaper loan, that's almost always better.
• The math must be clearly positive. If the ROI just barely exceeds the MCA cost, the risk may not be worth it.
• You must be able to service the payments. The opportunity payoff needs to happen within or before the MCA term.

Examples that might qualify:

• A restaurant gets an offer to cater a major event that will generate $40,000 in revenue but needs $15,000 upfront for supplies.
• A retailer has a chance to buy closeout inventory at 70% off that has proven to sell quickly.
• A contractor wins a bid that requires purchasing materials before the customer's deposit clears.

Examples that typically do NOT qualify:

• 'I need inventory for the busy season' (not a specific, calculable opportunity)
• 'This marketing campaign should bring in new customers' (too uncertain)
• 'I'll grow faster with more working capital' (vague, no specific ROI)

Scenario 2: True Emergency When All Else Has Failed

Sometimes a business faces a crisis that will end the business if not addressed immediately, and there is genuinely no other option available. This might include:

• A critical piece of equipment fails, and without it, the business cannot operate
• A major customer suddenly requires payment terms you must fund
• An unexpected tax bill or legal judgment threatens seizure of business assets

For this scenario to be legitimate, you must honestly answer:

• Have you truly exhausted all alternatives? Personal savings, family loans, credit cards, negotiating with creditors, selling non-essential assets?
• Is the business viable long-term? Using an MCA to delay an inevitable business failure is just adding debt to a failing situation.
• Can you service the MCA payments? If the crisis is caused by insufficient cash flow, adding MCA payments will make things worse.
• Is the alternative actually worse? Sometimes closing a business is better than taking on crushing debt.

The math on emergency MCAs is harder to calculate because you're comparing MCA cost against total business loss. If your business is genuinely worth saving and has a path to recovery, the high cost may be justified. But be very careful — this scenario is often used to rationalize decisions that make things worse.

Scenario 3: Very Strong and Consistent Card Sales

This scenario is the least common legitimate use case, but it exists for businesses with exceptionally strong cash flow. If your business processes very high volumes of credit card transactions relative to the MCA amount, the daily payments may be genuinely manageable.

Let's examine an example:

In this example, the business is essentially borrowing 20% of monthly revenue and paying 10% of daily revenue until repaid. For a healthy business with strong margins, this might be sustainable.

Requirements for this scenario:

• Card sales must be high relative to the advance. Taking an advance equal to 3-4 months of revenue is very different from taking 20% of monthly revenue.
• Sales must be consistent. High seasonality or variable revenue makes MCA payments dangerous during slow periods.
• Margins must be healthy. If you're operating on thin margins, even 10% daily holdback can push you into the red.
• There must be a reason faster payback is acceptable. Why pay the higher rate if you don't need the speed?

Even in this scenario, ask yourself: if your business is healthy enough to handle an MCA comfortably, it's probably healthy enough to qualify for a much cheaper business line of credit or term loan. The few days of faster funding from an MCA may not be worth the significantly higher cost.

The Decision Framework

Before taking any MCA, run through this checklist:

• Have I calculated or estimated the true APR? Use our calculator to convert the factor rate.
• Have I exhausted all alternatives? SBA microloans, online lenders, business credit cards, invoice factoring, equipment financing, CDFI lenders?
• Is this for a specific, high-ROI purpose? Vague 'working capital' needs rarely justify MCA costs.
• Can I definitely service the payments? Model your cash flow with the daily payments included.
• What is my exit strategy? How will I avoid needing another MCA when this one is repaid?

If you can't confidently answer all of these questions favorably, the MCA is probably not the right choice.

A Word on MCA Marketing

MCA providers are skilled at making their product seem appropriate for any business need. Be skeptical of pitches that suggest MCAs are:

• 'Easier than loans' (they're easier because they're riskier for you)
• 'Flexible because payments adjust with sales' (ACH-based MCAs don't adjust at all)
• 'Not debt because it's not a loan' (you still owe the money regardless of what it's called)
• 'A way to build credit' (MCAs are typically not reported to credit bureaus)
• 'Low cost at only X factor rate' (factor rates often obscure the true APR)

The three scenarios in this article are exceptions, not the rule. For most businesses, most of the time, MCAs are not the right choice. But if you find yourself in one of these narrow situations, now you have the framework to make an informed decision.

Final Thoughts

We created this guide because we believe business owners deserve honest, complete information. MCAs are not inherently evil — they're a financial tool that can be appropriate in very limited circumstances. But they're also a tool that has been aggressively marketed to businesses that would be better served by other options.

If you're considering an MCA, please read our full series of articles on MCA risks, alternatives, and costs. And if you do decide to proceed, do so with eyes wide open, a clear understanding of the true cost, and a concrete plan for how you'll avoid needing another one.