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Merchant Cash Advance Loan Service
- Funding from £5,000 per month
- Pay back through future credit/debit card terminal sales of your business
- Unsecured finance – your business assets are safe
- Flexible refinance
- Same day business funding
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What is a Merchant Cash Advance Loan?
A Merchant Cash Advance (MCA) is a form of business financing that’s been gaining popularity among UK businesses, particularly those in the retail and hospitality sectors. But what exactly is it, how does it work, and how does it differ from a traditional loan? Let’s delve deeper.
Definition of a Merchant Cash Advance Loan
A Merchant Cash Advance isn’t actually a loan, but rather an advance on your business’s future credit and debit card sales. In exchange for a lump sum of capital, a business agrees to pay a certain percentage of its daily credit/debit card sales until the agreed amount has been repaid in full.
Simply put, an MCA provides an upfront amount of cash to a business, which is then repaid via a percentage of business’s daily card transactions.
This form of financing is typically used by businesses that have a high volume of card transactions, like restaurants, shops, and online businesses.
How Does a Merchant Cash Advance Work?
When a business obtains an MCA, it sells a portion of its future card sales to the MCA provider in exchange for a lump sum of money.
Here’s how it works in practice:
- You apply for an MCA with a provider, who assesses your average monthly card transactions.
- The provider offers you a cash advance based on your card revenue.
- You receive the funds in a lump sum, usually within days.
- A percentage of your daily card sales (known as the holdback) is automatically transferred to the MCA provider until the advance and the factor fee is fully paid off.
A key aspect of MCAs is that they don’t have a fixed repayment schedule like traditional loans. Instead, repayments fluctuate in line with your daily card sales – so in slower business periods, your repayments will be lower, and during busier periods, they’ll be higher.
The Difference Between Merchant Cash Advances and Traditional Loans
It’s crucial to differentiate between MCAs and traditional loans:
- Payment structure: While loans typically require fixed monthly payments, MCAs repayments fluctuate based on the business’s card sales.
- Interest rates: Loans usually have an annual percentage rate (APR), whereas MCAs have a factor rate, which can result in higher overall costs.
- Collateral: Loans often require collateral, but MCAs are unsecured, meaning they don’t require any assets to back them up.
- Approval and funding time: MCAs can often be approved and funded in a matter of days, while traditional loans can take weeks or even months.
In the next section, we’ll explore the benefits of Merchant Cash Advances in more detail, helping you determine whether this form of financing is a good fit for your business.
The Benefits of Merchant Cash Advance Loans
For some businesses, an MCA offers significant benefits over traditional business loans. It’s a unique form of finance, one that can be an ideal fit for certain businesses.
Quick Access to Capital
One of the most appealing aspects of an MCA is how quickly businesses can access the funds. Traditional business or working capital loans often have lengthy application processes, and it can take weeks or even months before you see the money in your account.
With an MCA, once you’re approved, you could have the funds within a matter of days. This rapid access to capital can be crucial for businesses facing sudden cash flow issues or unexpected expenses.
High Approval Rates
MCAs have high approval rates compared to traditional loans. This is because the decision is based mainly on your business’s card transaction volume rather than on credit scores or financial history.
For businesses with a less than stellar credit history, an MCA can provide a lifeline when other lenders have shut the door.
No Collateral Required
Unlike traditional loans, MCAs are unsecured. That means you don’t have to put up any assets as collateral. This feature is particularly beneficial for businesses that don’t have substantial assets to offer as security.
Keep in mind, however, that while you’re not risking specific assets, your business is still on the hook to repay the advance.
Flexible Repayment Plans
An MCA has a distinct advantage when it comes to repayment – it’s inherently flexible. Because the repayments are based on a percentage of your daily card transactions, they naturally rise and fall with your business revenue.
So, if you have a slow month, your repayments will be lower. On the other hand, if you have a bumper month, you’ll repay the advance more quickly.
This dynamic payment structure can ease the strain on cash flow during slower business periods.
In the next section, we’ll balance this discussion by taking a closer look at the potential downsides of MCAs, which are important to consider before deciding on this financing option.
1. What is a Merchant Cash Advance (MCA)?
An MCA is a type of business financing where a company receives a lump sum of money in exchange for a portion of its future card sales. The amount is repaid through a percentage of the business’s daily card transactions.
2. How fast can a business get funds with an MCA?
One of the key advantages of an MCA is the quick access to funds. Once approved, a business could receive the cash advance within a few days.
3. Do you need good credit for a Merchant Cash Advance?
No, an MCA doesn’t necessarily require a good credit score. Approval is mainly based on the business’s card transaction volume rather than credit scores or financial history. This makes MCAs an accessible form of finance for businesses with less than perfect credit.
4. Do you have to provide collateral for an MCA?
No, MCAs are unsecured, meaning they don’t require any assets as collateral. This is a significant advantage for businesses without substantial assets to offer as security.
5. How are MCAs repaid?
Repayment of an MCA is unique. Instead of fixed monthly payments, the business repays the advance through a percentage of its daily card transactions. This means repayments fluctuate along with the business’s card sales, offering a degree of flexibility.
Working in partnership with our lending partners backed by the British Business Bank to deploy funds to support business growth and working capital
