Merchant Cash Advances (MCAs) are often positioned as quick and flexible alternatives to traditional loans – but how do they truly function in the Canadian business environment? For small and mid-sized retailers navigating seasonality, inconsistent cash flow, and limited access to bank credit, MCAs can be a lifeline – or a risk. In this article, we break down how MCAs work in Canada, where they’re most effective, and what considerations business owners should weigh before deciding.
How MCAs Work Differently in the Canadian Context
While Merchant Cash Advances have been a topic of legal cloudiness in the U.S., there has been determinative litigation that has confirmed the legality of MCAs in the U.S, Canada maintains clearer regulatory oversight, particularly under provincial consumer protection frameworks and contract enforcement laws. An MCA is not technically a loan – it’s an advance on future sales. The provider offers a lump sum to a business in exchange for a portion of daily or weekly sales revenue, plus a fixed fee (called a factor rate).
In Canada, the most common MCA agreements involve:
- Fixed percentage draws from sales revenues
- Short repayment terms (usually 3 – 12 months)
- No fixed interest rate, but a fixed “discount rate” rather than an interest rate. In this model, the lender purchases a set amount of the business’s future receivables at a discount. For example, if a funder agrees to purchase $20,000 of future sales with a discount rate applied, the business may receive $18,000 upfront today. The lender then collects the full $20,000 over time – typically from a percentage of daily or weekly sales – until the obligation is fully repaid.
This structure is not a loan, but rather a sale of future receivables at a discounted price, and repayment is tied to the business’s revenue flow.
MCAs in Canada can be an effective financing solution helping businesses address short-term needs. With diligent financial planning and responsible management of their terms, business owners can utilize MCAs to their advantage, without falling into challenging cycles.
Best Industries in Canada Suited for MCAs
MCAs are best suited for industries with:
- Consistent card-based sales
- Short revenue cycles
- Seasonal sales spikes
Ideal Canadian industries include:
- Restaurants and quick-service franchises
- Retail boutiques and gift shops
- Salons and spas
- Convenience and general stores
- Tourism-focused businesses (particularly in provinces like BC and Québec)
These businesses often need fast capital for inventory, renovation, seasonal staffing, or equipment upgrades – and may not qualify for bank loans due to credit issues or time in business.
Understanding Payback via Daily Sales Percentages
One of the defining characteristics of MCAs is the repayment model. Unlike loans with fixed monthly payments, MCA repayments flex with the business’s cash flow. Most agreements deduct 10% – 20% of daily credit/debit card sales until the total repayment amount is reached.
Pros:
- No fixed due date
- Lower payments during slow periods
- No collateral required
Cons:
- Higher total cost (effective APRs can exceed 40%)
- Can strain daily cash flow, especially for low-margin retailers
- Some providers charge additional fees or penalties for early repayment
Understanding these tradeoffs is essential. Retailers should ask for a total payback figure, not just the advance and factor rate.
CRA (Canada Revenue Agency) Considerations for MCA Repayment
MCAs are not considered taxable income by the CRA, since they are technically an advance on receivables. However, the cost of capital (i.e., the fee paid) is not considered interest and may not be deductible as a business loan expense.
Canadian business owners should:
- Record MCA advances and repayments separately in their books
- Consult with a tax advisor about how to categorize the fee component
- Ensure MCA repayments don’t interfere with payroll tax, GST/HST, or remittance obligations to CRA – especially since some businesses face penalties for late filings
AFN’s Approach to Fast Access Capital for Canadian Merchants
Advance Funds Network (AFN) offers merchant-focused financing solutions tailored to Canadian market realities. AFN evaluates each applicant’s business model, sales cycles, and growth plans to offer tailored advances with transparency and guidance.
Key differentiators:
- Personalized underwriting, not just automated algorithms
- Flexible repayment terms
- Canadian customer service and support
- No surprise fees or compounding factor traps
AFN positions its MCA offerings as a stepping stone, not a hindrance – encouraging business owners to graduate to more traditional financing over time.
Alternatives to Merchant Cash Advances in Canada
While MCAs can provide rapid liquidity, other options may offer better long-term financial stability:
| Alternative | Pros | Cons |
| Business Line of Credit | Flexible, reusable funding | Requires stronger credit profile |
| Installment Term Loan | Predictable repayment, lower cost | Longer approval timeline |
| Equipment Financing | Tied directly to asset value | Limited to equipment-related purchases |
| Government Programs | Lower rates, longer terms | Competitive and paperwork-heavy |
| Invoice Factoring | Advances on unpaid receivables | Only viable for B2B with large unpaid invoices |
Each business should carefully compare the total cost, repayment structure, and qualification criteria of these options before seeking an MCA.
HIGHLIGHTS
Are Merchant Cash Advances legal in Canada?
Yes, MCAs are legal in Canada, but they are governed by contract law, not lending regulations. This means providers do not need to comply with interest caps or loan disclosure laws – but must still abide by provincial consumer protection statutes. It’s important to read the fine print, as repayment terms can vary dramatically between providers.
Can an MCA hurt my business credit in Canada?
Most MCA providers do not report to credit bureaus in Canada, which means taking an MCA likely won’t improve your credit score. However, if you default or have your account sent to collections, this could appear on your business credit file, especially if the provider uses legal channels to recover the funds.
How fast can I get funding from a Canadian MCA provider?
If you meet basic eligibility criteria and have steady revenues,many providers – including AFN – can approve and fund an MCA within 24 to 48 hours. This makes MCAs one of the fastest forms of business financing available.
What documents are required to apply for a Merchant Cash Advance in Canada?
Most providers will require:
- 3 – 6 months of credit card or POS system statements
- Business bank account history
- Business license or registration documents
- Basic financials or revenue summaries
No collateral or personal guarantee is usually required, but your daily sales must be stable and verifiable.
Is a Merchant Cash Advance better than a loan?
There are many factors to consider when deciding which business funding option will best meet your needs. MCAs offer speed and flexibility, but they are more expensive than traditional loans. If your business needs quick capital for short-term needs and can handle the daily repayment deduction, an MCA can be helpful. But for longer-term capital, a term loan or line of credit may be more sustainable.
