This is a Guest Article was written by Mike Spitalney, CEO and founder of Everfund, a leading small business financing advisory firm. If you’d like to connect with Mike, you can inquire here or email him directly at mike@everfundcommercial.com.
If you run a restaurant, you’ve likely seen the offers: “Fast cash tomorrow.” “No credit score minimum.” “Pay as you sell.”
Merchant Cash Advances (MCAs) and the new wave of Point-of-Sale (POS) loans (like those offered by Toast or Square) promise speed and simplicity when you’re in a bind. The problem? They’re usually the most expensive money in the building—and they can quietly suffocate your cash flow.
This post breaks Merchant Cash Advances (MCAs) and POS loans down in plain English, shows how to translate their costs into an APR you can compare to other financing, explains when they might make sense, and gives better funding options to try first.
What is an MCA (or POS Loan) Really?
A Merchant Cash Advance (MCA) or POS loan feels like a normal loan in many ways – you get a lump sum today and pay it back over (a relatively short) time. But they are actually structured very differently from conventional loans, and this difference allows the cost to be surprisingly high.
OK, first, exactly what are they?
Merchant Cash Advance (MCA): You get a lump sum today in exchange for sending the lender a fixed total payback (the lump sum plus a fee). Repayment is taken automatically as a percentage of your daily card sales – known as a holdback – until the fixed amount is collected.
There’s no interest rate shown because it isn’t an interest loan; it’s technically a “purchase of future receivables” priced with a factor rate (e.g., if the factor rate is “1.20”, this means you pay back $1.20 for every $1 you received).
POS Loans (Toast, Square, etc.): Different label, same experience. You get capital quickly through your POS provider and repay it automatically from your card batches, sometimes daily, sometimes weekly. Even if the paperwork says “loan,” the economics behave like an MCA: fixed fee, fast payback, automated pulls tied to sales.
Typical timelines: Usually, 5 – 9 months to pay back is common. That’s fast. And fast money is rarely cheap.
Why Merchant Cash Advances (MCAs) and POS Loans Are So Costly (and So Dangerous to Cash Flow)
While MCA’s and POS loans do provide fast cash, they come with many restrictions and costs that aren’t always obvious. As you’ll see, these restrictions include being locked into payments, not saving from paying off early, a higher APR than is obvious, and an inability to refinance into better debt.
- Fixed fee, not interest. That “simple” fee (say, 15–30% of the amount you borrowed) is locked in from day one. Paying it off early doesn’t lower the cost.
- Declining balance—but not declining cost. Your balance falls fast as daily payments hit, yet you still owe the full fee. In APR terms, that’s punishing.
- Daily/weekly remittances sap working capital. A typically 5–15% holdback skimmed off every card batch can starve you of cash for payroll, food cost, and repairs—especially if sales dip.
- Stacking risk. Many operators take a second (or third) advance to keep up with the first. This is often deadly: payments pile on, and the math quickly stops working.
- The “bridge” is mostly gone. Many restaurants hope to use an MCA as a “bridge”, taking money now and hoping to quickly refinance it. However, as of June 2025, SBA financing won’t refinance MCAs anymore. So, the once-popular “take an MCA today and refinance into an SBA next month” idea no longer works. If you take the expensive money, plan to live with it until it’s fully repaid.
IMPORTANT NOTE on SBA LOANS: We’re in a weird moment for SBA loans and these products. Toast and Square and other POS providers call their advances loans, but the SBA hasn’t said whether those technically count the same as MCAs when it comes to being ineligible for SBA refinancing. Most SBA lenders are reading between the lines and saying, “If it walks like a super-expensive short-term advance and talks like one… we’re not paying it off.” That means even products marketed as loans (like these POS loans) could block your ability to refinance with an SBA loan.
The Real APR Reality Check Behind Merchant Cash Advances and POS Loans
Because these offers advertise a fixed fee instead of an interest rate, the price can feel abstract – until you translate it into APR. A quick, back-of-the-napkin method turns that fee and short payback period into an apples-to-apples number you can compare with conventional loans. Once you do, most advances that “sound” like a 20–25% fee reveal themselves as eye-watering, super high-APR financing.
Let’s walk through an example step-by-step:
- The amount you receive (net proceeds): $50,000.
- The total amount you pay back: $60,000. (Your factor rate is 1.2 in this case – you owe $1.20 for every $1 you received.)
- The fee (total cost): $10,000. Pay back $60,000 – $50,000 received = $10,000 fee.
- Estimated average outstanding balance: $25,000.
Because you repay quickly and daily, a rough, fair assumption is that your average balance is roughly 50% of what you received. So, in this case, average outstanding = $25,000.
Explanation: Why use an average daily balance? With an MCA, your repayment starts right away. That means you only owe the full $50,000 on day one — after that, the amount you owe keeps shrinking fast. But the fee you pay doesn’t shrink with it. So, instead of comparing the fee to the starting balance, it’s best to compare it to an estimated average of what you actually owe during the 6 months. That’s what reveals the true APR.
5. Convert payoff to years (annualize): pay back is .5 years. If payoff takes 6 months, that’s 6/12 = 0.5 years.
6. Finally, calculate the implied APR: 80%. Paying $10,000 on an average daily balance of $25,000 is a 40% “interest rate”. If you repay in 6 months, the implied APR for a year is double that, or around 80%. If the fee is larger (say, 1.25 factor rate), the APR jumps again and is closer to 100%!
Bottom line: A deal that “looks” like a 20–25% fee often lands as a 60–100%+ APR once you factor in speed and daily sweeps.
When Taking MCAs or POS Loans Might Make Sense (Should be a high bar!)
There are rare moments when speed matters more than cost. If an MCA or POS loan prevents a major revenue loss or funds a short, profitable opportunity, then the high-cost MCA or POS loan can be a tool – not a trap.
But the bar is high: you should know exactly how the cash protects or boosts sales, how the holdback fits your weekly cash plan, and how you’ll avoid stacking (taking multiple advances) while it’s outstanding.
MCAs and POS loans can be a tool in very narrow cases. Ask: Will this cash fix a problem that clearly protects or grows revenue enough to cover the full cost – and fast?
Examples:
- Emergency, revenue-critical repair. Your walk-in dies on Thursday before a busy weekend. Getting it running preserves thousands in sales and inventory the next few days.
- Time-sensitive, proven ROI. A short-term patio build or event pop-up with signed sponsors and some pre-booked demand that reliably outpaces the total payback.
- Bridge to certain cash—not “maybe money.” Funds you know are coming on a set date (insurance payout, signed catering contract with deposit schedule), term loan that confirms the ability to payoff the MCA. Note: “Bridge to SBA” is not a plan anymore.
Even in these cases, take the smallest amount needed, compare at least two offers if possible, map your cash flow week by week to ensure the holdback won’t choke operations, and talk to a financing broker or advisor if possible.
Better Financing Option for Restaurants
Before you reach for fast money, pursue cheaper, more durable financing options. SBA 7(a) term loans, bank term loans, business lines of credit, and equipment financing all offer lower costs and align the costs with useful life to keep payments manageable. Even business credit cards – used strategically and paid quickly – often beat the total cost of an MCA. The goal is clear: fund working capital needs at a fraction of the price and keep control of your cash flow.
Here’s a little more detail on these options:
- SBA 7(a) Term Loan
- When it works: Expansions, working capital, refinancing expensive non-MCA debt, partner buyouts, and improvements.
- Why it’s better: Much lower rates than MCAs; longer terms (up to 10 years for working capital, even longer for real estate) mean much smaller monthly payments.
- Trade-offs: Takes documentation and time, and if going it alone, there are many lenders to sift through. But the total cost is usually a fraction of the cost of MCAs or POS loans.
- Business Line of Credit (Bank or Credit Union)
- When it works: Managing seasonality, payroll timing, big inventory weeks, and even some expansion projects.
- Why it’s better: You pay interest only on what you draw; far cheaper than a fixed MCA fee.
- Tip: Even a modest LOC (e.g., $50k) can prevent ever needing a cash advance. And even LOC’s that aren’t super cheap (think 2 – 2.5% interest rate per month) are far cheaper than an MCA or POS Loan.
- Equipment Financing / Leasing
- When it works: Ovens, hoods, refrigeration, dish machines, coffee equipment, even furniture and fixtures.
- Why it’s better: The equipment serves as collateral; terms align with usable life; rates are typically reasonable.
- Business Credit Cards (Used Strategically)
- When it works: Short-term needs you can repay within a cycle or two, especially with a 0% intro APR.
- Why it’s better: If paid on time, total cost can be extremely low.
Tip/caution: Don’t revolve large balances at regular card APRs.
A Quick Decision Checklist
Merchant Cash Advances (MCAs) and POS loans look tempting when cash feels tight. But before any pen hits paper on an offer, take a breath. A minute of disciplined questions can save months of uncomfortable payments. Think of it as a pre-shift – five short checks to make sure the line will run when the ticket machine starts spitting.
- Can I express the use of funds in one sentence – and does it help me raise or protect revenue?
- Do I have a week-by-week cash plan showing I can live with the holdback during slow periods?
- Have I pursued one or two non-MCA options (SBA/LOC/equipment)?
- What’s the implied APR? Am I okay paying that?
- If sales drop 20% for two months, do I still make payroll, rent, and vendor payments?
If you can’t comfortably check these boxes, pause before proceeding. And almost always, if possible, explore cheaper capital.
The Bottom Line
MCAs and POS loans exist because they’re fast and easy – not because they’re good deals. Most of the time, they’re last-resort capital with a price tag that looks harmless in a dashboard but translates to eye-popping APRs once you run the math.
For emergencies, or for truly revenue-preserving or profit-boosting projects, they can be a necessary tool. Otherwise, your best move is to pursue alternative financing options, including an SBA term loan, a business line of credit, or equipment financing—and keep a business card handy for short-cycle needs.
Want help evaluating options before you sign anything?
Mike Spitalney and the team at Everfund help restaurant owners decode Merchant Cash Advances and POS loans, calculate true APRs, and secure funding that won’t strangle cash flow.
If you’d like to connect with Mike, you can inquire here or email him directly at mike@everfundcommercial.com.
