In this video, I explore the growing world of embedded business financing and why small business owners need to understand the real cost before accepting an instant funding offer.
We discuss merchant cash advances, APR, fixed fees, daily repayments, cash flow pressure, and financing offered through platforms already deeply integrated into your business.
Convenience doesn't necessarily mean good financing. A lender deciding that you can repay the money is very different from determining whether borrowing it is actually good for your business.
Before accepting any business financing offer, calculate the true APR, understand its impact on your cash flow, and compare it with bank loans, credit unions, SBA programs, supplier credit, equipment financing, and other alternatives.
I want to share a story about a financing tool I once used for a client back in my loan-broker days: the Business Cash Advance, sometimes called a Merchant Cash Advance (MCA). https://youtu.be/R4SXiFQHhNo
The Client Story
My client was at a family-owned restaurant. Like many small restaurants, their financial performance on paper didn’t look strong enough for traditional financing:
They had modest profits, about equal to what the three family members might have earned if they were employees elsewhere.
They likely had some unreported cash sales.
They ran personal expenses through the business, reducing reported profits further.
As a result, their financial statements didn’t qualify them for conventional loans.
The Merchant Cash Advance Solution
Here’s how an MCA worked for them:
The restaurant received $10,000 upfront.
The lender added a 25% fee, so the total owed was $12,500.
Instead of fixed monthly payments, the MCA company took a percentage of daily/weekly debit and credit card sales directly from the payment terminal until the $12,500 was fully collected.
For example, if the restaurant ran $1,000/week through their terminal, and the lender claimed 5%, then $50/week would go straight to repayment.
What MCA Lenders Look For
Sales Volume – Past statements from the card terminal are reviewed to ensure steady transactions.
Lease Length – If you don’t own your building, the lender wants enough time left on your lease to be confident they’ll get repaid.
The True Cost of MCA Money
While convenient, MCAs are incredibly expensive capital.
If you pay a 25% fee and repay steadily over a year, the effective interest rate is well over 40% once you account for the fact that you’re repaying the principal almost immediately.
I explain this in detail with examples in my book Invest Local, where I also break down how to calculate the true cost of different kinds of loans.
My Take on MCAs
For my restaurant client, it was the only available option at the time.
As a broker, I earned a commission from the MCA company, but I always disclosed the true costs to clients.
Looking back, if I had been lending my own money at that point, I may have structured a private deal instead.
Key Lesson
Merchant Cash Advances are sometimes the only lifeline for certain businesses—but they are one of the most expensive financing tools on the market. Business owners should use them sparingly, and only when other options are off the table.
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