The Hidden Danger of Fast Capital
Rick Colosimo: Mike, you've worked as a CFO and led M&A for major companies. Now, you advise small business owners on financial and growth strategy. What’s one of the biggest mistakes you see when companies are under cash pressure?
Mike Princi: One of the riskiest decisions I see is turning to merchant cash advances (MCAs). These are particularly common in businesses that generate most of their revenue through credit card transactions. An MCA provides a lump sum of cash upfront, in exchange for fixed daily or weekly repayments. It seems fast and simple—but the costs can escalate quickly. I call it a “financial Venus flytrap”—easy to enter, nearly impossible to exit without damage. Daily withdrawals drain cash just when a business needs flexibility most.
Why MCAs Are Structurally Risky
Rick: That sounds serious. What makes MCAs so problematic?
Mike: Unlike traditional loans, MCAs don’t have fixed monthly payments. Instead, they deduct from your daily or weekly card sales, no matter your costs. When business slows, you still owe the same—choking your working capital. Yes, you can renegotiate smaller payments toward a fixed percentage of your daily sales (which used to be common). But it never happens fast enough.
The real issue is the outrageous cost. The fees seem simple, like 20% of the borrowed amount, but when you annualize that through proper modeling, it often equates to 60% to over 100% in effective interest. We’d call that the “cost of capital.” That’s incredibly expensive. MCAs use a factor rate, typically ranging from 1.1 to 1.5. This means that for every $1 you receive, you repay $1.10 to $1.50. That may sound harmless, but compressed into short repayment periods, the cost of capital skyrockets.
Rick: What people may not know is that these aren’t loans, which means there is no protection from usury. That means those high rates of return – like interest – are legal.
Businesses at Highest Risk
Rick: What kinds of businesses are most vulnerable?
Mike: Companies with fast-moving operations and tight margins. Think online retailers, restaurants, medical/dental/vet practices, franchise operators, and service providers. These businesses often experience seasonal revenue patterns and need working capital flexibility—but they lack a dedicated process for cash flow planning.
Because MCAs are easy to access and require minimal underwriting, they’re tempting. They offer quick access to capital with fewer or no credit checks in exchange for being much more expensive than traditional financing. That speed might solve a short-term need, but if the business doesn’t rebound quickly, it leads to deeper financial stress. Some owners even stack multiple MCAs, creating a compounding debt cycle.
Smarter Alternatives to MCA Funding
Rick: So what should business owners do instead?
Mike: Start by thinking like an investor: Is this capital generating a return above its cost? If not, avoid it. Most of these businesses don’t see 60% returns in their best years. Why should the MCA company make more money than you?
Second, every business should maintain a simple 13-week cash flow forecast. This rolling calendar, meaning it’s updated every week, gives visibility into income and expenses. When you plug in an MCA repayment schedule, it becomes clear how disruptive those payments can be.
Finally, treat MCAs as a last resort, not a recurring solution. If you’re using one to cover routine bills, the real issue isn’t timing—it’s structural. And if you start stacking them up, you know you have a problem.
The Truth About “Advance Factoring”
Rick: What about products marketed as “advance factoring?” Are they better?
Mike: Often, no. True factoring means selling receivables you already have and transferring some or all of the collection risk. That has long been legitimate, and the cost is dramatically lower than MCAs.
But “advance factoring” is just a rebranded MCA. If you’re still responsible for repayment even if your customers default, that’s not factoring—it’s disguised debt and with these returns, often illegal. The name might be different, but the risks are the same.
Lower-Cost Alternatives to Traditional MCAs
Rick: Are there better ways to access short-term capital?
Mike: While MCAs inherently come with higher costs than traditional financing, there are several alternative funding options that can provide similar benefits (quick access, flexible repayment) with potentially lower costs and fewer challenges:
- Revenue-Based Financing (RBF): Similar to MCAs but typically offered by more regulated lenders with lower factor rates (often 1.06–1.3 instead of 1.1–1.5). Companies like Clearbanc (now Clearco) and Capchase offer these for specific business types.
- Business Lines of Credit: Provides flexible access to funds with lower interest rates (8–25% APR vs. effective annual rates of 40–200% for MCAs). You only pay interest on what you use. Options include traditional bank lines or online lenders like Bluevine or Fundbox.
- Invoice Factoring: If you have B2B customers, factoring companies will advance 80–90% of invoice values for fees of 1–5% per month, often cheaper than MCAs.
- Short-term Business Loans: Online lenders like OnDeck, Kabbage (now part of American Express), or traditional SBA loans offer more predictable payment structures with lower effective rates.
- Credit Cards: it seems impossible to suggest a 28% APR credit card, but that’s a much better rate than what you pay with an MCA. It’s not a great option at all, but it’s still better.
Prevention
Rick: What can an owner do to prevent this in the first place?
Mike: The key is planning ahead. Waiting until you're desperate limits your options and leads to bad decisions. That’s why I recommend *at least* 13 weeks on a rolling basis. That 3 months can be enough time to spot problems in advance.
Evidence-based financial planning is your first line of defense. Use reliable past data, straight-line forecasts for the future, and scenario planning for possible major changes to make deliberate and informed financial decisions. The second line of defense is operational strength—consistent billing practices, disciplined cost control, and dependable revenue performance. Together, these form a resilient foundation and reduce the likelihood of relying on high-cost or predatory financing. Finally, the third line of defense is being proactive: use your control over the business to make changes to fit your situation. If you see cash becoming tighter, reduce expenses, don’t pay your bills early, and try to collect your receivables earlier. Business owners have the power to act – to steer the business away from a cash crunch just as surely as you’d steer your car away from a brick wall.
In this framework, I often highlight to owners the importance of the four V’s: Volume, Velocity, Variability, and Value. Effective planning enables a business to manage the Volume of transactions and maintain a healthy Velocity of cash inflows, keeping the business ahead of financial obligations. Strong operations help reduce Variability in performance and increase the Value created from each dollar of revenue. Businesses that measure and optimize around these four pillars are far better positioned to withstand pressure and avoid financial traps.
Final Advice
Rick: Any closing thoughts?
Mike: You can’t fix a weak business model by borrowing more money. And no one should sign a financing agreement without knowing the true cost of capital.
MCAs offer speed, but they erode control. My mission is to help founders and operators protect their flexibility and make decisions like owners—not just borrowers.
Michael Princi is an experienced owner, operator, investor, and advisor who brings a practical, disciplined approach to building and scaling businesses. A graduate of West Point and former Army officer, he applies clear thinking and structured leadership to help companies align strategy with execution. Through his work with CerteVerus AI and Thoughtstorm, Michael partners with founders, executives, and investors to unlock value, improve performance, and drive sustainable growth. You can find Mike at .
If you have any questions about this article, the use of MCAs in your business, how to project and plan your cashflow, or the development and implementation of sound planning policies and procedures, please contact Richard J. Colosimo, Esq. ( or 908-964-2480).
