Unveiling the Merchant Cash Advance: Your Pathway to Flexible Business Financing
A merchant cash advance (MCA) is essentially an agreement where a funder purchases your business’s future card sales and advances you a sum equivalent to 100% – 200% of your average monthly card revenue.
In this arrangement, the funder sets a fixed finance cost and an agreed percentage split of future card takings.
This cost remains unchanged throughout the contract and is paid back from the % of card sales over a designated period.
One of the key attractions of an MCA is its flexibility: if your business faces a sudden slump, you’re not penalised.
Conversely, as your business flourishes, you can repay the advance more swiftly.
The Funding Store can be your trusted destination for sourcing competitive business finance.
Our team collaborates with a broad panel of esteemed lenders offering a variety of finance solutions.
We can assist you in identifying a financial solution that caters to your unique needs.
The Features of a Merchant Cash Advance
The beauty of the MCA lies in its adaptability to your business’s ebb and flow. It presents no hidden fees, no early or late charges, and your repayments align with your card transactions.
Therefore, it is viewed as an excellent unsecured short-term funding solution, especially for businesses with high transaction volumes or seasonal operations.
What is a merchant cash advance?
A merchant cash advance (MCA) is a business finance solution where a funder provides an advance amount based on your business’s future card sales.
This advance ranges between 100% to 200% of your average monthly card income, making it a flexible funding option that aligns with your business cash flow.
What is a typical merchant cash advance rate?
The cost of a merchant cash advance varies and depends on several factors, including your business’s financial health, the amount you’re borrowing, and the term of the advance.
Rather than a typical interest rate, an MCA uses a factor rate, typically ranging from 1.1 to 1.5. For example, a £10,000 advance with a factor rate of 1.25 would cost £12,500 in total to repay.
Is merchant cash advance safe?
Yes, a merchant cash advance is a safe funding option for businesses. However, it’s crucial to understand the terms and ensure your business can sustain the percentage of card sales committed to repayments.
To ensure safety, it’s recommended to work with a reputable commercial finance broker like The Funding Store. We have access to one of the most extensive and competitive lending panels in the UK, so can bring you fast, flexible solutions that meet your finance needs.
What do you need to get a merchant cash advance?
The requirements for an MCA typically include proof of regular card transactions, as the advance is based on your future card sales.
You’ll need to demonstrate a minimum of 3 months trading and a minimum turnover of £5k per month through card terminals.
Do cash advances hurt your credit score?
Merchant cash advances do not necessarily hurt your credit score. They are not traditional loans and repayments are based on your card sales.
However, like any financial commitment, it’s essential to manage the agreement responsibly to maintain a healthy credit status.
Is merchant cash advance a term loan?
No, a merchant cash advance is not a traditional term loan. It’s a type of funding where you receive an advance on your future card sales.
Unlike a loan, it doesn’t have a fixed repayment term. The repayments fluctuate in line with your business’s card sales.
How much can I borrow through a merchant cash advance?
With a merchant cash advance, you can typically borrow between £5k to £1m.
The exact amount you can borrow is primarily determined by your average monthly card sales. A higher volume of card transactions can potentially lead to a higher advance amount.
Incorporating a merchant cash advance into your business finance strategy can provide the flexibility you need to manage cash flow and fuel growth.
As with any financial decision, understanding the pros and cons is key to making the right choice for your business. The Funding Store suggest that you always seek independent financial advice before proceeding with any funding offer.
The Benefits of a Merchant Cash Advance
- Flexible Repayments: With an MCA, your repayments are proportionate to your card sales. If your sales slow down, your repayments decrease accordingly. Conversely, during profitable months, you can repay faster. This flexibility is ideal for businesses with seasonal fluctuations.
- No Security Required: Unlike traditional business loans, an MCA doesn’t require you to provide any assets as security. The advance is based on your future card sales, offering peace of mind and reducing financial risk.
- Quick Access to Funds: Applying for an MCA is typically faster and more straightforward than traditional loan applications. This efficiency means you can gain access to the funds you need quickly, which is particularly beneficial when opportunities or challenges arise.
- Less Emphasis on Credit Score: While your credit history is taken into consideration, the approval for an MCA is primarily based on your card sales history and revenue projections. This factor can make it a suitable option for businesses with less-than-perfect credit.
- Independence from your Bank: An MCA is separate from your bank account and unrelated to any bank loans you may have, ensuring a degree of financial independence.
- High Approval Rate: Given that repayments are based on future card sales, many businesses find it easier to get approved for an MCA compared to traditional loans.
A merchant cash advance from a reliable provider like The Funding Store can be an excellent tool for businesses looking to manage their cash flow effectively while investing in growth and opportunities.
Are You Ready to Apply for a Merchant Cash Advance?
Now that you’ve acquainted yourself with the ins and outs of a merchant cash advance, you might be wondering if it’s the right move for your business. To help you decide, here are a few considerations:
- Consider Your Card Sales Volume: Since the amount you can borrow is based on your card sales, ensure your business has a consistent volume of card transactions. If your business mostly operates on cash transactions, this might not be the best option for you.
- Evaluate Your Cash Flow Needs: An MCA is an excellent option for businesses looking to smooth out cash flow or make an investment in growth. If this aligns with your business goals, an MCA might be an ideal choice.
- Assess Repayment Capability: While an MCA offers flexibility, it’s crucial to ensure your business can sustain the agreed percentage taken from daily card sales for repayments.
- Think about Seasonality: If your business sees significant fluctuations in sales across the year, an MCA could provide you with flexible repayments aligned with your income stream.
- Check Your Eligibility: Your business should have been trading for at least three months and generate a minimum turnover of £5k per month through card terminals to be eligible for an MCA.
- Understand the Costs: The cost of an MCA is determined using a factor rate rather than a typical interest rate. Ensure you fully understand these costs before making a decision.
If after considering these points you feel an MCA could be beneficial, The Funding Store is ready to assist you.
They have a team of professionals who can guide you through the process, answer your questions, and help you source a finance solution that meets your business needs.
So why wait? Connect with The Funding Store today on 01908 880420 to discuss your funding options, or request a call back at your convenience.
Together, we can navigate the path to optimised business finance.