The Most Common Mistakes MCA Companies Make Early On, and How to Avoid Them

David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.

Most MCA companies that fail do not do so dramatically. They erode. The founder looks back after eighteen months and wonders how a business with so much early momentum ended up struggling for liquidity and chasing syndicator trust it somehow lost. Half its energy goes toward untangling records that should have been clean from the start. The answer is almost never a single catastrophic decision. It is a sequence of small ones, each reasonable in isolation, that compound into structural weakness.

I think of a young funder in New Jersey who reviewed his first ten funded deals about three months in. Several merchants were falling behind at nearly the same point in their terms. His underwriting notes, scattered between email threads and a spreadsheet he kept meaning to organize, offered no explanation. Nothing was broken exactly. But nothing lined up either. He had volume. He had brokers sending files daily. He had energy. What he did not have was a process that could teach him anything. The warning signs were already there, small and easy to dismiss, expensive to ignore.

This is how early lessons arrive. Not as crises, but as patterns that take shape slowly and reveal themselves only in hindsight.

The most common early mistake is stretching advances to win deals. A new funder feels pressure to grow, to prove they belong in the market. A merchant asks for more than the bank statements justify. A broker insists the file is clean, that steady work is lined up for next month, that the deal will perform. The funder approves the higher amount, reasoning that a larger fee compensates for the added risk. Weeks later, repayment starts slipping. By the time the weakness becomes undeniable, the funder realizes the pricing never reflected reality. This does not happen once. It happens across a dozen files, each approved with the same hopeful logic. Stretching becomes a quiet bleed on cash flow that can destabilize a young portfolio before anyone fully understands what went wrong.

Reserves present a related trap. Many funders hear performance benchmarks from brokers or peers and assume their own book will behave similarly. They reserve lightly because they want capital moving, or because early merchants seem stable. Then the first real default arrives, followed quickly by two more. The funder scrambles to cover obligations from operating cash, and suddenly the business has no cushion. Adequate reserves are not pessimism. They are acknowledgment that early portfolios behave unpredictably. A new company must protect itself long enough to learn the patterns unique to its own underwriting. That learning takes time, and time requires liquidity.

Syndicator relationships suffer their own form of neglect. Many companies treat outside capital as fuel, assuming the relationship will sustain itself as long as returns look acceptable. Reporting gets delayed because the funder is busy elsewhere. A few numbers fail to reconcile, and the explanation comes later, once there is time. A question sits unanswered for days because the team is stretched thin. None of this feels catastrophic in the moment. But syndicators notice. They remember which funders communicate clearly and which require chasing. A company that cannot deliver timely, organized information will struggle to attract the deeper commitments that make real scaling possible. Trust, once damaged, rebuilds slowly.

Recordkeeping is another early fragility, and perhaps the most underestimated. Companies store documents wherever convenient. Underwriting notes live partly in one CRM field, partly in a manager’s notebook, partly in an email thread nobody can find. Bank statements get downloaded twice under slightly different names. Merchant calls get logged sporadically or not at all. This scatter creates a version of the portfolio that cannot be reconstructed when questions arise. When a renewal decision needs context, or a payment dispute requires history, the funder spends more time searching than thinking. The real cost is not inconvenience. It is the loss of insight. Without organized records, the business cannot learn from its own decisions. It repeats mistakes because it cannot see them.

A subtler confusion appears around accounting itself. Early funders often rely on a basic bookkeeping setup that captures revenue and expenses for tax purposes but reveals nothing about deal-level behavior. They know how much was deposited in their account last month but they don’t know how much they have actually earned. They do not know how much came from renewals versus new advances. They cannot see aging by cohort or measure actual recovery on RTR. This blindness forces leadership to operate on instinct precisely when the business needs measurement. Tax accounting satisfies the IRS. Performance accounting informs the funder. They are not the same thing, and treating them as interchangeable is a mistake that catches up with everyone eventually. At Better Accounting Solutions, we see this confusion regularly across companies at all stages, and it is one of the most correctable problems a company can have once they recognize the distinction.

Manual processes create their own problems. A new funder typically handles underwriting, approvals, and collections all on their own. While volume remains small, this works well enough. When growth accelerates, the lack of automation creates bottlenecks nobody anticipated. Payments get entered inconsistently. Renewal dates slip. Collections follow-up happens later than it should because attention is elsewhere. Automation is not about removing human judgment. It is about preventing predictable errors and preserving time for decisions that actually require thought. A company that waits too long to automate finds itself perpetually behind its own workload, reacting instead of directing.

Internal communication frays in predictable ways. In the early months, everyone assumes mutual understanding. An underwriter mentions a concern casually, expecting the broker to remember. A collector flags a struggling merchant without copying the person handling renewals. Leadership assumes processes are clear because the team is small and motivated. As volume increases, these assumptions collapse. Files pass between hands without context. Merchants receive contradictory messages. Renewals go out to customers whose repayment problems were never properly documented. Misalignment produces errors that compound quietly until they become visible as losses.

There is also a tendency for growing companies to chase volume without asking whether the volume fits their identity. A broker steers them toward certain merchant types because those deals are easier to place. The funder accepts, thinking refinement can come later. Soon the portfolio fills with merchants whose cash flow patterns the funder never intended to specialize in and does not fully understand. Course correction grows difficult. A successful MCA company chooses its portfolio deliberately. Companies that let the market dictate their mix often end up managing risks they never planned to carry.

Avoiding these mistakes does not require slowing down. It requires shifting from improvisation to intention. The early months of an MCA company can be both energetic and disciplined. Strong companies grow quickly while pricing risk honestly, rather than optimistically. They communicate with syndicators as though every interaction affects future capacity, because it does. They build recordkeeping habits that allow decisions to be understood weeks or months later. They create performance reports that reveal the truth of the business even when the truth is uncomfortable. They automate early so people can think instead of chase.

A company that adopts this mindset gains more than stability. It gains clarity. It learns quickly which brokers bring consistent files and which bring chaos. It sees which underwriting patterns produce reliable merchants and which produce headaches. It discovers which segments renew and which vanish after one cycle. That clarity becomes confidence. Instead of guessing what next month holds, leadership understands why the portfolio behaves the way it does.

The early years set the character of the business. They determine whether growth happens under control or in crisis. Companies that take early structure seriously build foundations that can support scale. They do not fear velocity because they understand it. They do not scramble for liquidity because reserves were planned properly. They do not lose partners because communication stayed steady. And they do not spend their future cleaning up their past.

No MCA company avoids every mistake. The goal is avoiding the predictable ones. The first years offer a choice: chase speed and let structure catch up later, or build habits that make growth sustainable from the start. Companies that choose structure rarely regret it. They discover, often sooner than expected, that clarity is the real competitive advantage.

Lightspeed: ‘our largest use of cash will be growing our merchant cash advance business’

Lightspeed Capital originated $257M in merchant cash advances in the last 9 months of 2025, up from $207M over the same period in 2024. The company has repeatedly talked up the healthy profit margins earned on MCAs and last quarter called them a “super popular upsell.” Lightspeed operates in the POS and e-commerce space, competing against companies such as Shopify, Square, Toast, and Clover. Lightspeed Capital is its MCA business.

“Aside from potential buybacks, our largest use of cash will be growing our merchant cash advance business,” said Lightspeed CFO Asha Bakshani during the company’s recent quarterly earnings call. “There are currently $106 million in merchant cash advances outstanding, and we intend to continue to grow this high-margin business over time.”

Lightspeed MCAs are typically satisfied by merchants within seven months, but they want to shrink that timeframe even more. “Our goal is to target a shorter remittance time frame, and we are making great progress towards that end,” said Bakshani. The average factor rate is a 1.14.