Merchant Cash Advances in Canada 2025

Updated March 2025 · 9 min read

A merchant cash advance (MCA) is a form of business financing where a company receives a lump sum of capital in exchange for a percentage of future sales. MCAs are fast to obtain, require minimal documentation, and don't require strong credit — but they come with very high effective costs. This guide explains how MCAs work in Canada, who offers them, what they actually cost, and when (if ever) they make sense.

How Merchant Cash Advances Work

With an MCA, a financing company advances you a lump sum — say $50,000. In exchange, you agree to repay a larger amount — say $67,500 — by surrendering a fixed percentage of your daily or weekly credit/debit card sales until the total is repaid. The difference between the advance amount and the repayment amount is called the factor rate.

In this example, the factor rate is 1.35 (you repay 1.35x the amount advanced). The actual cost depends entirely on how long repayment takes. If you repay in 6 months, your effective annual rate is very high. If you repay in 3 months, it's even higher on an annualized basis.

Factor Rates Explained

MCA providers quote their cost as a factor rate, not an interest rate. Factor rates typically range from 1.10 to 1.50 in Canada:

• 1.10 factor rate: Borrow $50,000, repay $55,000
• 1.25 factor rate: Borrow $50,000, repay $62,500
• 1.40 factor rate: Borrow $50,000, repay $70,000

Factor rates are not the same as interest rates and cannot be directly compared. A 1.35 factor rate over 9 months is roughly equivalent to a 55–65% annual interest rate — far higher than any bank loan.

Repayment Structure

MCA repayment is typically structured in one of two ways:

• Percentage of daily sales: The MCA provider automatically collects a percentage (often 10–20%) of each day's card sales until the total is repaid. Repayment naturally slows during slow periods and speeds up during busy periods.
• Fixed daily/weekly ACH withdrawal: A fixed dollar amount is debited from your business bank account each business day or week regardless of sales volume. This is simpler but less flexible during slow periods.

Who Offers MCAs in Canada

MCAs in Canada are offered primarily by alternative lenders, not traditional banks:

• Merchant Growth (Vancouver-based, active MCA provider)
• Clearco (revenue-based financing with MCA-like structure)
• Driven (equipment and working capital focused)
• Lendified
• Various US-based MCA providers operating in Canada

Most major Canadian banks do not offer MCAs. They consider the product too high-risk and the fee structure inconsistent with their lending standards.

Eligibility for an MCA in Canada

MCA eligibility is based primarily on revenue history, not credit score:

• Typically 3–6 months of business bank statements or merchant processing statements
• Minimum monthly revenue (usually $100–$15,000/month)
• No open bankruptcy
• Active business bank account
• Credit score requirements are much lower than conventional loans — some providers approve with scores below 550

MCA Pros and Cons

Pros

• Fast funding — often within 24–72 hours of application
• Minimal documentation compared to bank loans
• No collateral required beyond future sales
• Accessible to businesses with poor credit or short operating history
• Flexible repayment tied to sales (for percentage-of-sales structures)

Cons

• Extremely expensive — effective APRs often exceed 50%
• Daily repayments can strain cash flow
• Factor rate doesn't decrease if you repay early (unlike interest on a loan)
• Can create a debt cycle if stacked or rolled over
• Not regulated as loans in Canada — consumer protection laws don't fully apply
• Some providers use aggressive collection practices

When Does an MCA Make Sense?

MCAs can be justified in narrow circumstances:

• A time-sensitive opportunity (bulk inventory purchase, equipment at a significant discount) where the profit from the opportunity far exceeds the MCA cost
• A genuine short-term cash emergency where all other options have been exhausted
• A bridge while waiting for a conventional loan to close

MCAs are generally a poor choice for ongoing working capital, covering operating losses, or any situation where the underlying business is structurally unprofitable.

Alternatives to MCAs in Canada

Before considering an MCA, exhaust these lower-cost options:

• Business line of credit from your bank
• BDC working capital loan
• Invoice factoring (typically 2–5% per 30 days vs MCA's much higher effective rate)
• Business credit card for smaller amounts
• Shareholder loan (owner injects personal funds temporarily)
• Negotiating extended payment terms with suppliers
• Accelerating collections from customers