Merchant cash advances are ideal for businesses with a high number of card transactions since they provide rapid, flexible financing without the hassle of tracking monthly cash flow. Repayment is a great choice for many SMEs in the hospitality, retail, and leisure sectors since it easily adjusts to your revenue.
Table of Contents
What is a Merchant Cash Advance?
A merchant cash advance (MCA), which converts future income into instant cash, offers flexible financing. Repair from customer card receipts, MCAs involve fixed percentage deductions on a daily, weekly, or monthly basis. Easier to obtain than traditional loans, they’re ideal for businesses with limited assets or credit history, often accepted even after rejection elsewhere. MCAs suit businesses with high card transaction volumes across various industries, welcoming applications from sole traders, partnerships, and limited companies alike.
How Do They Work?
Businesses using card terminals may qualify for an MCA as the lender assesses the volume of card payments processed by your terminal provider. This information determines the loan amount and repayment structure tailored to your trading patterns and income levels. MCAs offer flexibility by adjusting daily, weekly, or monthly repayments to match your card income, making them suitable for businesses with variable or seasonal earnings. Repayment is seamless as payments are deducted directly by the card terminal provider, simplifying the process for borrowers. The total amount of the loan is decided by taking into account things like card turnover and your capacity to make comfortable repayments.
How Can I Use a Merchant Cash Advance?
There are many acceptable uses for cash advance loans for business, including:
- Stock purchases
- Premises renovation or expansion
- Funding large orders
- Maintaining regular cash flow
- Settling VAT or tax obligations
- Financing marketing and new business initiatives
- Acquiring plant or office equipment
Benefits of Merchant Cash Advances
Merchant cash advances offer flexibility and scalability, adjusting to your business’s growth and operational trends. Here’s why they’re a preferred choice:
- Flexible repayment. You repay based on your customer card income, contributing more during prosperous times and less during slower periods.
- Accessible financing. Often requiring no collateral or extensive financial scrutiny, MCAs suit businesses with limited credit history or minimal hard assets.
- Speedy approval. Unlike traditional funding, MCAs can be secured swiftly, with some receiving offers within 24 hours of application.
- Seamless repayment. You can focus on operating your business instead of worrying about managing your cash flow to make repayments since payments are deducted straight from your income source.
- Transparent costs. The factor rate is fixed upfront and has no additional expenditures, so loan costs are clear from the start.
Disadvantages of Merchant Cash Advances
While merchant cash advances provide several advantages, there could also be some drawbacks.
- Higher cost. The expense of an MCA can surpass that of a standard business loan, with the factor rate established at the beginning based on your business’s operations. This rate remains fixed regardless of any subsequent business growth.
- Dependency on card transactions. Businesses reliant solely on cash, cheques, or bank transfers may not qualify for an MCA, as they are based on card terminal receipts.
- Loan size limitation. Lenders typically offer loans equivalent to 1-2 times your monthly card turnover, with some potentially offering higher amounts. If your loan requirements greatly exceed your card turnover, an MCA might not be the appropriate choice for your business.
Determining whether a merchant cash advance is suitable for your business hinges on factors such as your reliance on card transactions, your repayment capabilities, and your willingness to accept potentially higher costs in exchange for flexibility and speed.