I was recording a podcast interview last week and my guest said something chilling.

Kody Lukens is the founder and CEO of Stimara. He is an ecommerce owner, not a finance guy, and he walked me through the math on a merchant cash advance.

This was not a predatory lender or a scam. It was an advance from the sales platform, and it would take a percentage of daily sales until it is repaid.

The example he used was 7%, which sounds survivable, almost reasonable, if you consider the convenience of it.

But let’s get clear on the terms and then reconsider if it still sounds reasonable.

One term and number you must know is your net margin. This is your bottom line, and for 2/3 of the clients I analyzed in my recent Special Report, The Secret to Thriving, their net margin was under 10 percent.

You also need to understand remittance, which is typically the payment you make. In this example with merchant cash advances, it’s the percentage they take out of your sales.

Note that it is convenient: they take it out automatically, with every sale, whether the day was good or not, and it comes out of the top line.

In the example Kody mentioned, if you are running a 10% net margin, a 7% remittance is most of every dollar of profit you make.

It’s the opposite of Profit First, because they get paid before you pay yourself, before you reorder, and before you fund next quarter’s inventory.

Now divide the remittance percentage by your net margin. That number is the share of your profit the advance is taking, and most owners never run it.

In our example, it’s 70%. Ouch.

And what makes it worse, the fee is fixed the day you sign, and the money comes back out of sales. Selling faster does not save you anything, it just compresses the same cost into less time. The better month you have, the faster the money leaves.

I understand why ecommerce brand owners take these advances. The inventory deposit is due, the payout is two weeks out, and the advance funds tomorrow. It seems like a simple way to solve a problem.

But you’re solving a symptom, not a cause. The real issue is cash timing. That gap between paying for inventory and getting paid is what I call the Cash Flow Canyon.

A merchant cash advance does not bridge this canyon; it actually widens it. Every dollar of growth demands a bigger inventory order, and the remittance takes the cash you need to place it.

When we analyzed the financials behind our 2026 research report, we saw that thriving businesses borrow to grow, while struggling businesses borrow to survive. The math compounds in opposite directions.

A merchant cash advance cannot pass that test. The remittance rises with your sales.

I wish every ecommerce owner would run these two numbers before seriously considering an advance: the payment as a percentage of sales, and your actual net margin.

If the first is anywhere close to the second, the advance will not fund your growth. It will hold you back instead.

Quick Summary

• A merchant cash advance takes a fixed percentage of daily sales (the remittance) until repaid, taken automatically off the top line regardless of profitability.
• To see the real cost, divide the remittance percentage by your net margin. A 7% remittance against a 10% net margin consumes 70% of your profit.
• Merchant cash advances solve a cash timing symptom (the gap between paying for inventory and getting paid) rather than the underlying cause, and they widen that gap as sales grow rather than closing it.

FAQ

What is a merchant cash advance for ecommerce businesses?
A merchant cash advance is funding provided against future sales, typically offered directly through a sales platform. Instead of fixed loan payments, the platform automatically takes a set percentage of daily sales until the advance is repaid.

How do I calculate the real cost of a merchant cash advance?
Divide the remittance percentage (the cut taken from each sale) by your net margin. That result shows what share of your actual profit the advance is consuming. A remittance close to or higher than your net margin means the advance is absorbing most or all of your profit.

Why do merchant cash advances get more expensive as sales grow?
Because the remittance is a percentage of sales, not a fixed dollar amount, a better sales month means more money leaves the business faster. The total fee is fixed the day you sign, but strong sales simply compress that same cost into a shorter timeframe.

What is the Cash Flow Canyon?
The Cash Flow Canyon is the gap between when a business pays for inventory and when it actually gets paid by customers or platforms. A merchant cash advance does not close this gap. It widens it, since growth requires larger inventory orders while the remittance takes the cash that would fund them.

If you’d like to figure out what direction you could head instead, reach out and join our waitlist. We’ll reach out when a spot is available.

Cyndi