Are Merchant Cash Advances Worth It? A Beancount Perspective
Merchant cash advances (MCAs) are everywhere in 2025. If your business accepts card payments, you have probably been pitched “fast funding in 24 hours.” The offer sounds painless: you receive a lump sum today and repay it automatically as a percentage of future card sales. No collateral, no fixed payment. What could go wrong?
Quite a lot, as it turns out. MCAs are one of the most expensive ways to buy working capital. They are also one of the least transparent. This guide walks through how an MCA really works, how to model the cost inside Beancount, and the questions to ask before you sign.
How Merchant Cash Advances Really Work
| Step | What Happens | Why It Matters |
|---|---|---|
| 1. Funding | You receive an upfront advance (for example, $80,000). | The provider immediately withholds a “factor rate” fee — usually 1.3× to 1.5× the advance amount. |
| 2. Daily Holdback | The provider pulls a fixed percentage of your daily card sales (say 12%). | Payments flex with revenue, but the provider controls your operating cash flow. |
| 3. Completion | Repayment continues until the advance plus fees are collected. | There is no discount if you pay faster, and refinancing early often adds penalties. |
MCAs are marketed as “not loans,” which means they avoid state usury limits. Instead of quoting an interest rate, providers quote a factor rate. An 1.35 factor rate on an 108,000 — regardless of how quickly the advance is satisfied. When you translate that into an annual percentage rate, the true cost often lands between 40% and 120% APR.
Modeling the True Cost in Beancount
A few ledger entries can make the economics painfully clear:
2025-09-13 * "Merchant cash advance funding"
Assets:Bank:Operating 80,000.00 USD
Liabilities:MCA:Provider -108,000.00 USD
Expenses:Financing:MCA 28,000.00 USD
This entry books the entire obligation on day one and recognizes the fee as an expense. From there, post the daily withdrawals against the liability account. When you run a balance report, you see:
- Outstanding liability: how much of the $108,000 you still owe.
- Effective APR: use a query or Jupyter notebook to compare the internal rate of return on the cash flows versus a bank line or SBA loan.
- Cash flow impact: Beancount’s
balcommand reveals how the holdback squeezes your operating account during slow months.
Because MCAs withdraw a percentage of revenue, your payback period is uncertain. Plug realistic revenue scenarios into a beancount-query or pivot report to see how long the liability lingers at different sales levels.
Warning Signs Before You Sign
- Factor rate above 1.3× – Anything higher means you are effectively paying triple-digit APR once you normalize for the short repayment window.
- Daily or weekly reconciliation – More frequent draws make it harder to manage cash, especially if you also have payroll or rent hitting weekly.
- Personal guarantee clauses – Even though MCAs are framed as revenue-based, many contracts still pull in personal guarantees or blanket liens.
- Stacking allowances – Some providers allow or even encourage multiple advances at once. That is a recipe for a cash crunch spiral.
- Contract opacity – If the provider cannot produce a sample repayment schedule or refuses to disclose the total dollar cost, walk away.
Smarter Alternatives to Evaluate First
| Goal | Lower-Cost Option | Typical Requirements |
|---|---|---|
| Smooth card revenue | Card processor working capital | 1+ years processing history, consistent sales |
| Finance inventory | SBA 7(a) or 504 loan | 680+ FICO, collateral, detailed financials |
| Short-term bridge | Bank or credit union line of credit | Solid banking relationship, 12–24 months in business |
| Recurring revenue advance | Non-dilutive SaaS financing | Contracted ARR, churn metrics, investor-ready financials |
| Invoices waiting to be paid | Accounts receivable factoring | Business-to-business invoices with creditworthy customers |
Each of these options has documentation and underwriting, but the effective APR is often half (or less) of an MCA. Use Beancount to build pro forma cash flow statements so you can compare how different products impact your runway and margins.
Using Beancount to Stay in Control
- Track every offer – Create a
Liabilities:Financing:Offersaccount and record quotes as metadata. You will build a data set of factor rates, fees, and terms over time. - Simulate repayments – Use beancount-query or a Jupyter notebook to simulate daily holdbacks versus fixed monthly payments.
- Tag revenue volatility – Apply Beancount tags to transactions so you can quickly generate rolling revenue averages. Share those reports with potential lenders to strengthen your case for lower-cost credit.
- Automate alerts – Pair Beancount with
bean-reportor custom scripts so you get notified when the MCA liability balance exceeds a predefined threshold.
Beancount makes it easy to audit the cost of capital. When the numbers live in plain text, you and your advisors can push them into version control, run scenarios, and avoid being surprised by “gotcha” fees.
Bottom Line
Merchant cash advances are best treated as an emergency-only tool. If you are facing a short-term crunch and every other option is closed, they can buy time — but the trade-off is steep. Before accepting an offer, model the cash flows inside Beancount, review the contract with counsel, and shop alternatives that preserve more of your hard-earned revenue.
Need help modeling scenarios or setting up reporting? Our team can help you spin up a Beancount ledger, automate data imports, and build dashboards that keep financing decisions transparent.
Next steps:
- Clone our Beancount business template to jump-start your ledger.
- Book a session with our onboarding team to review financing scenarios.
- Subscribe to the newsletter for more plain-text accounting workflows.
Staying disciplined with data will help you grow on your terms — without mortgaging tomorrow’s revenue at today’s desperation rates.
