A merchant cash advance (MCA) or business cash advance, is a non-traditional form of business funding. An MCA, can provide a business with an initial cash amount that is reimbursed by deducting a portion from your debit and credit card sales along with a fee.
What is Merchant Cash Advance finance?
A merchant cash advance, or MCA, is an alternative type of business financing it gives businesses an upfront sum of cash that you repay using a percentage of your debit and credit card sales, plus a fee.
This type of financing can be particularly appealing to businesses that experience high volumes of card transactions, such as restaurants or retail stores.
Merchant Cash advances usually start from £2,500, with some lenders providing up to £1 million based on your business turnover, thus catering to businesses of all sizes.
Repayments are made with the lender typically deducting a percentage from each payment you receive via card terminals or online e-commerce. You will agree on the repayment percentage in advance, generally ranging from 10% to 20% of each sale processed.
Depending on the volume of transactions processed, you can potentially repay the advance faster, reducing the total interest paid. Although the lender may include a clause, specifying a future date for repayment.
If your business takes card payments or online commerce, with balances showing on bank statements, then you could be eligible for a MCA.
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Benefits of Merchant Cash Advance finance
Quick decision
The processing time for your application is usually within 48 hours, but it may be even faster.
Being an existing merchant is advantageous as it clears the initial obstacle since lenders have stringent requirements before permitting card transactions through a terminal.
Suitable for businesses with limited assets
Merchant cash advances are a great solution for businesses with limited assets but with a high volume of card transactions. This option offers a way to secure immediate funding for your business, which is then repaid through your card machine transactions.
Flexible terms
Merchant cash advances differ from traditional business loans. Instead of dealing with a loan amount, interest rate, and term, a cash advance involves selling future sales to the lender at a discount. Therefore, your repayments are directly linked to the amounts processed through your card terminal; you reimburse a percentage of your customers’ card transactions.
This repayment method can be beneficial during slower trading periods, especially for seasonal businesses. This approach could be an ideal fit for your business as your payments align with your customer volume and profit levels.
Flexible uses
The payment processing firm will not specify how you spend the advance. Whatever you spend it on should be good for the business and, in turn, hopefully, increase your bottom-line profitability and overall performance. You can spend it as a cash flow injection, use it to buy equipment, decorate your premises, or take on more staff, etc.
Works alongside other financing
If you currently have fixed-term loans or have utilised other credit options with a bank, but require additional credit for your business, a payment advance can be a valuable supplement.
Consider it as a line of credit that complements your existing funding sources. Alternatively, if this is your sole loan and another lender observes your responsible management of this facility, it could enhance your chances when seeking additional loans.
Merchant Cash Advance Frequently asked questions
Can I keep my existing card machine provider?
In most cases, yes, you can. Many lenders will try to collaborate with your current provider. Yet, certain providers limit the lenders you can access. If this occurs, you might need to exchange your current terminal for one from a different provider to meet the loan requirements.
Am I eligible for a merchant cash advance?
If your business can accept card payments from customers and meets the minimum volume requirement the lender sets, then the answer is yes. Here are the essential requirements:
- Minimum volume of card payments
- Sufficient profitability to demonstrate loan repayment capability
- Bank statements or other financial records like audited accounts
Can a sole trader get a merchant cash advance?
Yes. If they meet the minimum criteria, sole traders, partnerships, and limited companies can all apply.
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A merchant cash advance can be hugely beneficial to businesses of all sizes. The flexibility provided means that any business can enjoy the benefits of spreading the cost of their investment.
However, if this option is not right for you, we offer a vast range of commercial finance and asset finance solutions, so you can get an arrangement that perfectly suits your requirements.
To find out which is right for you, get in touch today! Contact our team to discuss your options or simply have an initial chat. We look forward to hearing from you!
Contact us to discuss your requirements.
Need help? Call us on 0191 410 4776