Merchant Cash Advances for Minority-Owned Businesses

Access to capital continues to be a major hurdle for minority-owned businesses. Traditional lenders approve loans for minority entrepreneurs at lower rates than their white counterparts. Merchant Cash Advances (MCAs) have emerged as an alternative, offering faster approvals and fewer traditional barriers—though they come with important costs and risks. This guide explores how MCAs can be used strategically by minority-owned businesses.

Why MCAs Appeal to Minority-Owned Businesses

Fewer traditional barriers: MCA approval is based largely on credit card sales, not personal credit scores or extensive documentation—making them more accessible.
Speed matters: Approval and funding can happen within 24–48 hours, ideal for businesses that need to act quickly on opportunities.
Revenue-based qualification: Businesses processing $15,000+ per month in credit card transactions may qualify regardless of credit history or collateral.

Understanding the Real Costs

High costs: Factor rates typically range from 1.2 to 1.5, meaning you pay $120–$150 for every $100 borrowed.
Daily repayments: MCAs deduct 10–20% of daily credit card sales, which can strain cash flow during slow periods.
Compare total cost: MCAs may be more accessible, but they often cost more than traditional loans. Always evaluate all options first.

Strategic Uses That Make Sense

Seasonal inventory: Stock up ahead of peak sales periods where revenue can quickly repay the advance.
Revenue-generating equipment: Use MCA funds for tools or upgrades that directly boost sales.
Emergency repairs: Address urgent issues like broken equipment or compliance-related fixes.
Marketing campaigns with proven ROI: Scale campaigns that already demonstrate consistent returns.

Building Toward Better Financing Options

Use MCAs as a stepping stone: Responsible use can help establish a business credit profile.
Maintain financial records: Clean books and reliable revenue documentation improve future funding opportunities.
Tap into minority business support: Connect with organizations like the MBDA, local SBDCs, and minority-focused lenders for coaching and access to better loans.

Alternative Funding Sources to Consider

CDFIs: Community Development Financial Institutions serve underserved groups and often offer better terms than MCAs.
Minority-focused lending programs: Some banks and credit unions have programs tailored to minority-owned businesses.
SBA microloans: Loans up to $50,000 with more favorable terms, though the application process is slower.
Revenue-based financing: An option for businesses with predictable income, typically with lower costs than MCAs.

Due Diligence Before Applying

Research providers: Work only with reputable MCA companies that clearly explain terms and don’t pressure you to sign quickly.
Read the contract: Understand repayment amounts, payment collection methods, and what happens if sales decline.
Model cash flow impact: Ensure you can still meet rent, payroll, and essential expenses during repayment.
Have a clear repayment plan: Know how the funds will generate revenue and cover repayment obligations.

Best Practices for Success

Start small: Try a smaller MCA first to assess how daily payments affect your business before scaling up.
Build strong relationships: Positive relationships with MCA providers can lead to better terms and flexibility in the future.
Plan for graduation: Use your MCA experience to qualify for better funding as your credit and records improve.
Network with peers: Learn from other minority-owned business owners who’ve successfully used MCAs and transitioned to more favorable financing.

The Bigger Picture

MCAs fill a gap: They provide access to capital when traditional options fall short—especially for underserved businesses.
Focus on long-term growth: Use MCAs as short-term tools to build credit, revenue, and business stability.
Advocate for inclusion: Support initiatives that improve access to better financing for minority-owned businesses.

The Bottom Line

MCAs can offer fast capital to minority-owned businesses—especially for short-term, revenue-generating needs. However, their high cost means they’re best used with a clear plan and as a bridge to better options. Understand the total cost, align the funding with profitable uses, and focus on building the financial foundation needed for longer-term, lower-cost financing success. Informed decisions today can pave the way for stronger business growth tomorrow.

Last updated on August 7th, 2025.