Benefits of a Merchant Cash Advance

Last post: Oct 10, 2019

A merchant cash advance - otherwise known as an MCA - is a popular form of alternative business finance. It works well for small firms and sole traders that make the majority of their income through credit card transactions as opposed to invoices and bank transfers, such as shops, restaurants, salons and cafes.

With a long list of advantages when compared to traditional bank loans, there are many reasons why business owners choose to take out a merchant cash advance to help their business reach the next level. Here's a few of the main attractions… 

Repayments are scalable

When you take out something like a merchant cash advance, it's usually because you need a bit of extra money to make things happen within your business. Of course, that extra money needs to be repaid at some point. When you take out a traditional bank loan, you are expected to pay back a set amount on set dates over time. A merchant cash advance however is not a loan, so you won't be given a set repayment time. Instead, the amount you repay at any one time is proportional to your turnover. That's because it's based on your credit or debit card transactions. 

An MCA involves the advance provider working alongside the terminal provider, with a small proportion of each card transaction - typically about 10-15% - being paid to the advance provider until the total amount borrowed has been repaid.

So, if you were to go through a lean period when you don't have as much money coming in - such as perhaps a restaurant in January when consumers are taking it easy after Christmas -  you won't pay as much back during this time. Over the Christmas period however when it may be your busiest time, you'll pay more of your merchant cash advance back.

Your credit won't be affected

It's not always the case, but many businesses choose to take the alternative finance route because their credit history isn't in the best health. Other types of traditional business financing may require you to have a good credit score, a history of good business behaviour or significant collateral. 

A huge benefit of a merchant cash advance is that it won't show up on your credit report because it's technically considered a sales transaction. You won't need to put your assets on the line or prove your credit score, although it is of course still a good idea to have your admin in order. You'll need to prove your credit card revenues so that the provider can determine how much they can afford to loan you. Get your running costs, bank statements, receipts and any other important outgoings organised.

Also, just because a merchant cash advance has high approval rates, it's not a good idea to  brush off any current delinquencies and negative balances. A lender will still need to see that you will be able to repay the money, so be honest and stay on top of finances as much as possible.

You choose how you spend the money

Some small business loans have restrictions on how you can spend the money you're lent. Another benefit of a merchant cash advance is that there are no restrictions. You can spend the money on whatever you like for the business.

It's a good option if you need money to take on new staff, buy new stock or equipment or if you have an emergency situation such as a broken pipe or leaky roof. It's money for you to fall back on to keep things ticking in your business or to give you the boost your business needs to grow. Perhaps you need to use the money for a few different things. With a £10,000 loan, you could put £2,000 towards paying off debts, £5,000 to fund a new marketing campaign and £3,000 for a refurbishment.

Get your funds fast

Organising a traditional bank loan can take weeks - sometimes even months. For small businesses in need of funds, waiting that long often isn't an option. An MCA boasts a much quicker turnaround. The majority of MCA funding will be available within the same week that the application is processed and in the best cases, in as little as 24 hours.  

A lot of this is down to the fact that an MCA isn't based on personal credit, time in business or financials, so there's not as much in the way of information and paperwork to sift through and approval rates are nice and high. This makes getting where you need your business to be so much easier, improving your profits in the long-run.

Given these benefits alone, it's no wonder that businesses everywhere are turning to merchant cash advances to fund their next project or milestone. For more information on this form of alternative finance, get in touch with us here at Choice Business Loans.