Retailers in the US, Canada and beyond have faced several financial headwinds in recent years. From supply chain disruptions and inflationary pressures to shifting consumer habits and international trade tensions, many retail businesses are feeling the strain.
One challenge that has recently disrupted the retail landscape is the impact of global tariffs and trade restrictions, particularly as geopolitical tensions persist and economic policies evolve. With rising import costs and supply chain volatility, maintaining a healthy cash flow has become increasingly difficult for many retailers.
As a result, business owners are actively seeking new ways to access flexible funding that can help cover rising expenses and prepare for the unpredictable. Among the options available is a financial solution that often goes unnoticed: a merchant cash advance (MCA).
But what is a merchant cash advance, how does it work, and could it be the right fit for your business? Let’s take a closer look.
How tariffs and trade tensions are impacting retail businesses
Before we dive into how merchant cash advances can help businesses, let’s take a step back to examine the current state of the industry and why some retailers are struggling.
While inflation and rising operational costs have posed challenges for retailers, another less visible (but equally disruptive) issue is the ongoing impact of global tariffs and international trade tensions.
In particular, tariffs on imported goods from key manufacturing markets like China, combined with supply chain bottlenecks and shifting international policies, have pushed up the cost of products and raw materials. For many retailers, this has created a dual pressure: absorbing increased costs vs. passing them on to price-sensitive customers.
Recent geopolitical events and trade policies have made this issue even more pronounced, and the lingering potential for new tariffs on a wide range of imported goods has left many retailers operating in a state of financial uncertainty.
How are retailers impacted?
- Higher import costs: Essential inventory items, from electronics to homewares and fashion, have seen price hikes due to tariffs on goods sourced from overseas.
- Reduced margins: With suppliers increasing prices to offset tariff costs, retailers often face slimmer profit margins, particularly when consumer price sensitivity limits the ability to pass on those costs.
- Cash flow pressure: Bulk ordering to avoid future price rises or delays can place significant strain on working capital, especially for small and mid-sized retailers.
- Inventory risks: Some businesses are forced to overstock when tariffs are anticipated or raised, creating additional storage costs and the risk of excess inventory if consumer demand shifts.
With these challenges mounting, having quick, flexible access to funding has become critical. This is where financial assistance, like a merchant cash advance, can provide vital support, helping retailers manage cash flow, purchase stock, or fund essential operational expenses without the lengthy approval processes of traditional loans.
What is a merchant cash advance?
With more and more retailers facing unpredictable financial pressures, securing additional funding has become an increasingly common priority.
One financing option that often flies under the radar is a merchant cash advance.
First and to clear up a common misconception, a merchant cash advance isn’t a loan. Instead, it’s a purchase of a business’s future receivables.
So, what does that mean in practical terms?
Essentially, a merchant cash advance provides upfront working capital to a business in exchange for a portion of its future card sales. Retailers receive a lump sum advance, which is then remitted through a percentage of daily credit and debit card transactions until the full amount is repaid.
The key benefit? A business isn’t required to make fixed repayments—funds are only remitted as sales are made. This can be a major relief for retailers managing cash flow fluctuations or navigating unpredictable sales cycles or supply chains.
The difference between a merchant cash advance and a loan
As we just touched on, a merchant cash advance differs from a traditional loan.
Traditional loans involve borrowing a sum of money from a financial institution and repaying it with interest over an agreed-upon period. They involve comprehensive applications and collateral to help lenders mitigate risk.
An MCA does not qualify as a loan because it’s a sale of future revenue.
Because of that technicality, cash advances are not subject to the scrutiny imposed on a standard small business loan. That means cash advances are a quick and easy way formerchants to acquire the cash flow they need, rather than waiting for a bank’s rigorous and slow approval process. Nor does it require a traditional payment schedule, and your credit score does not determine whether you qualify.
Another interesting thing to note about an MCA is that it doesn’t impact your credit score. Similarly, you don’t need a glowing credit report to apply for an MCA. As a merchant cash advance isn’t a loan, you aren’t receiving any credit, so your credit score remains untouched when you obtain an MCA.
How can a merchant cash advance help in an uncertain economy?
There are endless reasons why a business might need a merchant cash advance, and each one will depend on the individual business’s specific needs, goals and finances. Typically, though, MCAs are ideal for businesses seeking short-term cash flow or who need quick access to funding for immediate business expenses.
Ongoing global trade tensions and shifting tariffs have created new financial pressures, particularly for North American retailers. There’s no one-size-fits-all approach as to why a business might want to apply for a cash advance, but here are a few common reasons why a retail business might consider an MCA in the current economic climate.
Rising inventory costs from tariffs
With increased import duties on certain products and materials, inventory costs continue to climb. Retailers can use a merchant cash advance to buy stock in bulk or pre-stock inventory ahead of anticipated price hikes, helping to preserve margins and maintain stock availability.
Sales volatility due to economic uncertainty
In an uncertain and unpredictable economy, shifting market conditions and consumer sentiment can cause sudden drops in sales. Unlike traditional loans with fixed repayments, an MCA adjusts with your sales volume, so you only repay when you make sales, offering built-in flexibility during slower periods.
Cash flow strain from shrinking margins
As rising costs squeeze profit margins, maintaining healthy cash flow can be a challenge. An MCA provides fast access to working capital (often within 1–2 business days) so you can cover operational expenses or invest in new opportunities without waiting weeks for loan approvals.
Avoiding the risks of traditional loans
With no compound interest and no fixed repayments, a merchant cash advance offers a more flexible funding option for retailers who want to avoid the long-term risks and rigid terms of conventional loans.
The pros and cons of a merchant cash advance
A merchant cash advance can be a useful financing tool for businesses needing quick capital. Here’s a detailed look at the pros and cons to explore if an MCA is the right choice for your business.
Advantages of a merchant cash advance
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Fast access to cash
MCAs are typically approved and funded much faster than traditional loans, often within a few days. This speed can be crucial for businesses needing immediate cash to address urgent needs.
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Flexible remittance
Remittance is tied to daily credit card sales, so payments fluctuate with the business’s revenue. This means there are no fixed monthly payments, which can be beneficial during slower periods.
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Doesn’t impact credit scores
Approval is often based on the volume of credit card transactions rather than credit score, making MCAs accessible to businesses with low credit or limited credit history.
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No collateral required
MCAs are unsecured, meaning businesses don’t need collateral to secure the advance, reducing the risk of losing assets.
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No restriction on use
With traditional loans, part of the application process can include submitting a business plan that details precisely how you will use the funds for your business. However, funds from an MCA can be used for various business needs, such as inventory, repairs or marketing, offering flexibility in how the money is used.
Disadvantages of a merchant cash advance
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Higher costs
Despite a cash advance coming with a one-time flat fee, these numbers can scare people away because they tend to be higher than the rates offered by traditional loans. If you’re considering choosing between a bank loan and MCA, translating the factor rate or flat fee into the loan equivalent–annual percentage rate (APR)–can help you compare costs.
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Daily remittance
The requirement to remit a percentage of daily sales may strain cash flow, especially if sales are lower than expected. It’s important for every business considering an MCA to review their cash flow and any associated constraints related to daily withdrawals.
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Lack of regulation
MCAs are not regulated like traditional loans, which means less consumer protection for business owners. Unfortunately, some predatory providers take advantage of the lack of regulation of the MCA industry. This can be a huge stressor for businesses who believe they have signed up for a legitimate service. That’s why it’s essential to do your research before applying.
While MCAs offer quick and flexible access to funds, the high cost and impact on cash flow are significant considerations. Businesses should carefully evaluate their financial situation, potential revenue projections and alternative financing options before pursuing a merchant cash advance.
How to get a merchant cash advance
One of the main benefits of a merchant cash advance is the speed at which you can receive funds. In other words, the process is quite simple. Here are the seven steps you’ll usually have to follow when applying for an MCA.
- Choose your MCA provider.
- Complete an application.
- Submit relevant documents, usually payment statements and several statements showing your business’s credit card transaction history.
- Review your offer thoroughly. That includes the factor rate (the cost of the advance expressed in a decimal amount) or flat fee (a percentage of your cash advance added to the total amount to be remitted) and any other conditions.
- Once you sign the agreement, the provider typically performs a quick underwriting process.
- When that’s done, you’ll be approved and receive the funding shortly after.
- The advance will be remitted automatically through your daily or weekly sales until it’s remitted in full.
Remember: As with any business funding, you’ll want to do your due diligence in reviewing the offer and the provider you go with. If it’s your first time working with a certain company, consider consulting a financial advisor so they can give the offer another look before you sign anything.
How can Lightspeed Capital help your business?
Lightspeed’s merchant cash advance program, Lightspeed Capital, is available exclusively to eligible Lightspeed merchants.
In times of economic uncertainty, we firmly believe business owners should have better access to funding. Lightspeed Capital is here to support your business with a cash advance that can stabilise your cash flow and keep your business running smoothly.
Unlike a traditional loan, you can use your cash advance on your own schedule for any business expense, and you can pay it as you go, only when you make sales.
Our process is simple: there’s no red tape or lengthy application, so you get your funds as quickly as possible.
With Lightspeed Capital, you can:
- Bulk up your cash flow for peace of mind
- Pay unexpected business bills and expenses
- Get business financing without the stress of credit checks
- Remit the cash advance only when you make sales
How Lightspeed Capital works
Here at Lightspeed, we want to ensure that the application process is quick and painless so that you can access funds as soon as possible. Our team pre-screens for eligibility and creates a cash advance offer tailored to your business. If everything runs smoothly, you should have access to the funds after four simple steps.
- Our Lightspeed Capital experts determine your eligibility.
- Your offer will appear in your back office.
- Request funding in the Financial Services section of your back office.
- Once approved, funds are sent to your bank account, and the balance is remitted through a percentage of your daily sales.
If you’re already a Lightspeed customer, you can learn more about Lightspeed Capital here. You can also log into your back office to see if there is a current Lightspeed Capital offer available for your business within your home dashboard.
If you’re not a Lightspeed customer, talk to an expert about our POS and Payments solution for businesses.
Editor’s note: The content in this post is intended for informational purposes only and should not be considered legal, financial, or tax advice. We recommend consulting with a qualified legal or accounting professional for personalised guidance. Where available, we have included primary sources to support our information. We strive to ensure accuracy; however, we cannot be held liable for any actions taken based on this content. Please note that Lightspeed does not commit to updating or verifying any new changes to the information in this blog post after its publication.
