Merchant Cash Advance

A merchant cash advance, or MCA, is a unique type of financing that provides businesses with a lump sum of cash in exchange for a small percentage of future sales. It’s an attractive option for businesses that need quick access to capital but don’t want to give away an equity stake. Detailed below, we look at the benefits of a merchant cash advance, how to qualify, what to look for in a provider, and more.

Are you a business owner who needs extra capital to cover unexpected expenses? Are you looking for a way to finance a new product launch or expand into a new market? If so, a merchant cash advance may be the answer.

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What is a Merchant Cash Advance?

A merchant cash advance is a type of financing that provides businesses with a lump sum of cash in exchange for a small percentage of future sales. Unlike a traditional loan, there are no interest rates or fixed repayment terms. Instead, the business agrees to repay the advance with a percentage of their future sales.

The amount of the advance is based on the number of sales the business is expected to generate. The lender will review the business’s bank statements and other financial documents to determine how much it can lend. Once the lender has approved the loan, the business receives the funds in a lump sum.

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What is the process of obtaining a Merchant Cash Advance?

The process of obtaining a merchant cash advance is relatively straightforward. The business owner will fill out an application and provide the lender with the necessary financial documents. This includes bank statements, tax returns, and other information about the business.

The lender will then review the application and determine how much money it can lend. The amount of the advance will depend on the business’s expected sales and its ability to repay the loan. Once the advance is approved, the business will receive the funds in a lump sum.

What are the Advantages and Disadvantages of a Merchant Cash Advance?

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Advantages

There are several advantages to taking out a merchant cash advance. The most obvious is that it provides businesses with quick access to capital without giving away an equity stake. This can be especially helpful for businesses that need to cover unexpected expenses or want to finance a new product launch.
Another benefit is that the repayment terms are flexible. Since the repayment is based on a percentage of future sales, businesses can repay the advance faster if they generate more revenue or slower if they generate less. This can be especially helpful for businesses with seasonal or unpredictable sales.
Finally, merchant cash advances are often easier to qualify for than traditional loans. Since they are based on future sales, lenders are less concerned with a business’s credit score or financial history. This makes them a good option for businesses with poor credit or limited assets.

Disadvantages of franchising:

Disadvantages

While a merchant cash advance can be a great option for businesses that need extra capital, there are some risks to consider. The most obvious is that it’s an unsecured loan, so if the business is unable to repay the advance, the lender may attempt to collect the remaining balance from the business’s bank account.
Another risk is that the repayment terms may be difficult to manage. Since the repayment is based on a percentage of future sales, the business may have to pay back the advance faster if it generates more revenue or slower if it generates less. This can be difficult to manage, especially for businesses with seasonal or unpredictable sales.
Finally, merchant cash advances can be expensive. Since they are based on future sales, they often come with higher fees than traditional loans. Make sure to compare the different options to make sure you’re getting the best deal.

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Do I qualify for a Merchant Cash Advance?

To qualify for a business cash advance, your organisation must meet the following requirements:

Qualifying for a merchant cash advance is relatively straightforward. Since the advance is based on future sales, the lender will want to know how much the business is expected to generate. This can be determined by reviewing the business’s bank statements and other financial documents.

The lender will also want to know if the business can repay the loan. This can be determined by looking at the amount of future sales and the business’s cash flow. If the business can generate enough revenue to cover the advance, the lender may approve the loan.

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What should I look for in a Merchant Cash Advance provider?

When looking for a merchant cash advance provider, it’s important to compare the different options. You’ll want to look at the fees, repayment terms, and other features to make sure you’re getting the best deal.
First, consider the fees. Different providers may charge different fees, so make sure to compare the different options. You’ll also want to look at the repayment terms. Some providers may require a fixed repayment schedule while others may allow you to repay the advance based on a percentage of your future sales.
Finally, it’s also important to look at the customer service. Make sure to read online reviews to get an idea of how the provider treats its customers. This can help you determine if the provider is trustworthy and has a good reputation.

Is franchising a good fit for my business?

What are the repayment
options?

There are several different repayment options for a merchant cash advance. The most common is a fixed repayment schedule. With this option, the business agrees to pay back the advance in regular instalments over a set period of time.
Another option is to repay the advance with a percentage of future sales. With this option, the business agrees to pay back the advance with a percentage of each sale. This can be an attractive option for businesses with seasonal or unpredictable sales.
Finally, some lenders may offer a combination of the two options. This can be a good option for businesses that want the flexibility of a percentage-based repayment but also want to pay back the advance in a timely manner.

Key FAQs

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A merchant cash advance is a unique type of financing that provides businesses with a lump sum of cash in exchange for a small percentage of future card sales.

Instead of traditional loan repayments, a business agrees to repay a merchant cash advance with a percentage of its future card sales. There are no fixed repayment terms, and the advance is repaid based on the business’s card sales revenue.

To qualify for a merchant cash advance, your business should process a minimum of £5,000 in card sales per month and have a trading history of at least 3 months. Lenders may also review bank statements and other financial documents to assess your ability to repay the advance.

A merchant cash advance provides businesses with quick access to capital without giving away equity. Repayment terms are flexible, and it’s easier to qualify for compared to traditional loans.

The main risks include potential difficulties in managing repayment terms based on sales, the collection of remaining balances if unable to repay, and the higher fees compared to traditional loans.

When choosing a provider, consider comparing fees, repayment terms, and customer service. Look for transparent terms and conditions, positive online reviews, and a good reputation.

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The process involves filling out an application, providing necessary financial documents such as bank statements and card sales history, and having the lender review your application. Once approved, you’ll receive the funds in a lump sum.

Yes, you can use a merchant cash advance to pay off existing debt. However, ensure that you can afford to repay the advance in a timely manner and consider speaking with a financial advisor for guidance.

Typically, there is only a set fee for taking out a merchant cash advance, these types of lenders rarely charge any other associated fees such as admin fees or application fees.

It’s important to read the terms and conditions carefully to understand all the fees involved.

If you’re unable to repay the advance, your first action should be to contact the lender directly to discuss your current circumstances. They will work with you to come to an amicable arrangement. Be sure to fully understand the consequences of not being able to repay the advance, as this can have an adverse effect on your credit profile.

Merchant cash advances are often available to businesses with poor credit scores. Lenders are generally less concerned with credit scores and financial history as long as the business can demonstrate the ability to generate enough revenue to cover the advance via card sales history.

Most types of businesses that regularly accept credit and debit card sales are eligible for a merchant cash advance. This includes industries such as retail, hospitality, and many others. However, eligibility may vary between lenders.

More Frequently Asked Questions

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Yes, there may be additional fees associated with a merchant cash advance. These fees can include application fees, origination fees, and closing fees. Make sure to read the terms and conditions of the loan carefully to make sure you understand all the fees associated with the advance. There are no hidden fees or hidden costs involved, making the whole finance solution very transparent.

If you can’t repay the advance, the lender may attempt to collect the remaining balance from your bank account. This is known as a “chargeback”. Make sure to read the terms and conditions of the loan carefully to make sure you understand the consequences of not being able to repay the advance.

Unfortunately not, no. We have detailed some helpful links below that specialise in business debt advice:

Business Debtline

Money Advice Trust

British Business Bank 

Yes, you can use a merchant cash advance to pay off an existing loan advance. However, it’s important to make sure that you can afford to repay the advance in a timely manner. If you’re not sure if you can afford to repay the advance, it’s best to speak with a financial advisor before taking out a merchant cash advance.

Yes, you can, but there’s typically no benefit to doing so. As a merchant cash advance charges a fixed percentage fee, otherwise known as a factor rate, as opposed to an interest rate, no rebate of interest charges is available.

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Most types of businesses tend to take credit card payments and debit card payments, so very few industries don’t qualify. You could be a sole trader with retail shops on the high street or you could be a limited company with a chain of beauty salons, a merchant cash advance loan is available to almost every industry that regularly takes credit and debit card sales.

In short, yes you can. This type of funding solution is flexible with differing credit ratings as the loan is largely dependent on your average monthly card sales and projected future card sales. That being said, a business credit check and a soft credit search will be carried out on the directors and owners of the business without affecting your credit score.

This will differ from lender to lender, as each business funding provider works in a different way. Across the board, acceptances are typically above 85%.

As the lender is guaranteed payment via your card terminal from future card sales, an MCA is typically an unsecured business loan, not a secured business loan. Some businesses’ monthly card turnover can reach a large amount, meaning lenders can request personal guarantees to be signed by the directors or owners.

Unfortunately not, no. This type of business finance is solely for businesses registered in England, Wales, Scotland and Northern Ireland. If you’re registered office is located outside of the UK, this would deem you ineligible.

Conclusion

A merchant cash advance can be a great option for businesses needing quick capital access. It provides businesses with a lump sum of cash in exchange for a small percentage of future card takings. It’s an attractive option for businesses that need to cover unexpected expenses, finance a new product launch or need capital as your business grows with flexible repayments.

When looking for a merchant cash advance provider, it’s important to compare the different options. Look at the fees, repayment terms, total repayment amount and customer service levels to make sure you’re getting the best deal as there are many different funding options available to choose from nowadays. Make sure to read the terms and conditions of the loan carefully to make sure you understand the consequences of not being able to repay the advance.

Finally, it’s important to remember that a business cash advance is not without risks. The repayment terms may be difficult to manage and the fees can be expensive. Make sure to weigh the risks and benefits before taking out a merchant cash advance.

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