7 mistakes to avoid when getting a merchant cash advance
By Helm, Funding Specialist
- Always compare the total repayment amount, not just the advance size
- Do not take more than your business can comfortably repay
- Avoid stacking multiple advances from different providers
- Read the full agreement before signing
- Choose a reputable provider with transparent terms
A merchant cash advance can be an excellent way to access fast, flexible capital for your business. But like any financial product, it works best when you use it wisely. Making avoidable mistakes can cost you money, put pressure on your cash flow, and create unnecessary stress.
Here are seven common mistakes to watch out for, and how to avoid them.
1. Not comparing the total repayment amount
The biggest mistake business owners make is focusing on the advance amount rather than the total repayment. Two providers might both offer you £20,000, but if one has a factor rate of 1.25 and the other 1.40, the total cost is very different.
Always ask for the total repayment figure in writing and compare it across providers before committing.
2. Borrowing more than you can comfortably repay
It can be tempting to take the maximum amount offered, but a larger advance means a larger total repayment and higher daily deductions. Take only what your business genuinely needs, and make sure the repayment percentage leaves you with enough working capital for daily operations.
A good rule of thumb is to ensure your daily repayment deduction does not exceed 15 to 20 percent of your card sales.
3. Stacking multiple advances
Taking advances from multiple providers at the same time is one of the riskiest things you can do. Each advance deducts a percentage from your card sales, and the combined effect can leave your business short of cash.
If you need more funding, speak to your existing provider about a top-up rather than going elsewhere for a second advance.
4. Not reading the agreement
MCA agreements are typically shorter and simpler than bank loan documents, but you should still read every line before signing. Pay particular attention to the factor rate, repayment percentage, any additional fees, and what happens if you change card processors.
If anything is unclear, ask the provider to explain it. A reputable provider will be happy to walk you through the terms.
5. Using an MCA to cover ongoing losses
An MCA works best when used for investment and growth: buying stock, refurbishing your premises, or funding a marketing campaign. Using an advance to cover ongoing operating losses is dangerous because it creates a cycle of debt without addressing the underlying problem.
If your business is consistently losing money, address the root cause before taking on additional funding.
6. Choosing a provider based on speed alone
Speed is important, but it should not be the only factor in your decision. A provider that funds quickly but charges a much higher factor rate will cost you more in the long run. Take the time to compare at least two or three providers on cost, terms, and reputation.
Most reputable providers can fund within 48 hours, so the speed difference between good providers is usually minimal.
7. Not planning how to use the funds
While MCAs do not require you to submit a business plan, having a clear idea of how you will use the funds is important. Random spending without a clear purpose is unlikely to generate the return you need to justify the cost of the advance.
Before applying, think about exactly what you will spend the money on and how it will benefit your business.
Quick reference: mistakes and solutions
Here is a summary of each mistake and how to avoid it.
| Mistake | How to Avoid It |
|---|---|
| Not comparing total cost | Get total repayment figures from 2 to 3 providers |
| Overborrowing | Only take what you need, keep repayments under 20% |
| Stacking advances | Use top-ups from your existing provider instead |
| Not reading the agreement | Read every line and ask questions |
| Covering losses | Fix the underlying issue before borrowing |
| Choosing on speed alone | Compare cost, terms, and reputation too |
| No plan for funds | Decide exactly what you will invest in before applying |
Frequently asked questions
What is the most common MCA mistake?
The most common mistake is not comparing the total repayment amount across providers. Business owners often focus on the advance size and miss significant cost differences.
How do I know if I am overborrowing?
If the daily repayment deduction would leave your business short of cash for operating expenses, you may be borrowing too much. Work out the daily impact before committing.
Is stacking advances illegal?
No, it is not illegal. But it is financially risky and most reputable providers advise against it. High combined repayment percentages can seriously damage your cash flow.
Can I cancel an MCA after signing?
MCA agreements do not typically include a cooling-off period like regulated financial products. Once you sign, you are committed to the terms. This is why reading the agreement carefully beforehand is so important.