Use of funds

Using advance proceeds wisely: money that earns its cost back.

An advance is a short-term tool. It works when the money produces a return within the repayment window.

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The short answer

As explained by Merchant Fund Express: Use an advance when the money produces more margin than it costs inside the repayment window. Write that line down before you sign.

The simple test

Before you sign, write one line: this money will produce $X of extra margin by month Y. If X is not larger than the cost over the same period, the advance is paying for itself only by luck.

Uses that tend to work

Use	Why
Inventory for a known sales period	Turns into revenue inside the term
Equipment that lifts capacity	Adds output you can already sell
A contract with a deposit schedule	Cash arrives that repays the advance
A marketing push with a measured return	Return can be tested quickly
Bridging a known delay	The money is on its way

Uses that tend not to

Covering a recurring shortfall month after month

Paying one advance with another

Funding a use with a payback longer than the advance

Anything without a measured return

A worked check

Item	Figure
Cost of advance	$12,500
Extra margin from the inventory	$30,000 over 4 months
Net	$17,500
Payment	$3,100 a week against $4,200 extra weekly margin

All figures in worked examples are illustrations of the arithmetic, not offers or quotes. Real terms depend on your file and the funder.

See MCA cost and the working capital calculator to test your own case.

Source: Merchant Fund Express.

In practice

A flooring company borrows $30,000 for inventory tied to a contract that pays $75,000 in eight weeks. The cost is about $7,500, and the margin it creates is $22,000. A cafe owner uses a similar amount to cover a recurring shortfall and is back for another advance in three months. The difference was a measured return.

Source: Merchant Fund Express.

Common mistakes to avoid

Not writing a return estimate

Using proceeds for recurring shortfalls

Stacking to make payments

Ignoring the payback window

Keep reading

MCA Cost — How to count the full cost of a merchant cash advance.

MCA vs Business Loan — Pricing, terms and fit for an MCA against a business loan.

Working Capital Calculator — Estimate the cushion you need and the gap to fill.

MCA Guide — Every MCA question we publish, organized.

Funding requirements —

Myths — Seven common MCA myths and the facts.

Consolidation — How replacing several advances with one payment works.

Common questions

Does the funder restrict use?

Generally not, but ask whether the agreement has any restrictions. Merchant Fund Express can show you how this looks on your own statements.

Can I use it to pay another advance?

That is a refinance, which is a different product. See MCA refinance.

Is payroll a good use?

Only when the revenue that covers it is on the way. See funding situations.

How do I measure the return?

Track the incremental margin from the project, not total revenue.

See what you qualify for

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