Business & Merchant Cash Advance
A Merchant Cash Advance allows businesses who take debit/credit card payments to get cash using their card sales as security. Repayment is made via a percentage of card sales and they are flexible for clients with adverse credit history.
WHAT IS REQUIRED
6-12 months banking data (Open Banking preferred)
6-12 months card processor statements
Directors details
WHY CHOOSE IT?
Quick Access to Funds
Flexibility if Income Fluctuates
No Collateral Required
Simple Application Process
What is a Merchant Cash Advance?
A Merchant Cash Advance (MCA) is a quick and flexible financing solution that provides businesses with an upfront lump sum in exchange for a percentage of future card sales. Unlike traditional loans, repayments are automatically deducted as a percentage of your daily credit and debit card transactions, making it an ideal option for businesses with fluctuating revenue.
How does a Merchant Cash Advance work?
If most of your turnover is taken through your card terminal, a Merchant Cash Advance is a quick and seamless way to raise capital for a variety of uses.
Here is how it works:
- Application – Connect your
bank to open banking for the lender
to analyse monthly income and outgoings using read-only access. Some
lenders may also need to be connected to your accounting software, or
require financials accounts.
- Receive Funding – Get a cash advance based on
your average monthly card sales. Typically, you will get 1-1.5x your
monthly revenue.
- Grow Your Business – Use the funds for any business
purchase, including purchasing stock, equipment, renovations, or cash flow
needs.
- Flexible Repayments – Instead of fixed monthly
payments, you repay through a percentage of your card transactions
(usually 10-20%).
Since repayments are tied to sales, there are no fixed repayment deadlines - if business slows down, repayments adjust accordingly.
Is a Merchant Cash Advance suitable for my business?
Let's say, for
example, that you need quick access to cash. It's your restaurants busiest
season and a fridge suddenly breaks and needs replacing as soon as possible.
You could get a Merchant Cash Advance and borrow the equivalent of your
business's average monthly turnover.
An MCA could be a great fit if you or your business:
- Accepts
customer payments via credit/debit card.
- Experiences
seasonal or fluctuating sales – unlike a traditional loan, repayments are made
in line with your sales.
- Needs
fast, unsecured funding with flexible repayments.
- Has
some minor credit challenges – due to payments taken from source, a Merchant
Cash Advance lender can be more relaxed on credit criteria.
- Will get supplier discount by bulk buying stock.
It is particularly popular among retailers, restaurants, salons, and hospitality businesses
that generate revenue through card payments.
To benefit from a Merchant Cash Advance, you need to be making the majority of your revenue through a card terminal. If this doesn't sound like your business, you might be better off considering an Unsecured Business Loan.
What is required for an application?
- Business must be trading for at least 6 months.
- Minimum monthly card sales of £5,000+.
- Proof of business bank statements and card processing statements. Most lenders now require you to connect to Open Banking as part of the application.
FAQs
What is the difference between an MCA and traditional term loan?
Although they share a few similarities, a loan and Merchant Cash Advance are two very different products. One of the main differences between the two is the way they're paid back. Whilst a cash advance is paid back as a percentage of your business's debit or credit card sales over an open-ended period of time, bank loans work with fixed repayments. With a bank loan, you might find yourself short of your repayments if you go through a quiet period. That can quickly become stressful. With a cash advance, you have the flexibility that traditional finance just can't offer. It's super manageable and scalable.
I take card payments online, do I qualify for a Merchant Cash Advance?
Yes, some lenders will take into account all revenue streams when assessing an application. If you only sell your products or services online, then your business may be more suited for E-Commerce Funding.
How much can I borrow with a Merchant Cash Advance?
The amount you can borrow is typically 100%-150% of your average monthly card sales, depending on the lender’s criteria.
What does it cost?
The cost of a Merchant Cash Advance varies from lender to lender and is based on the financial health of the business and other factors such as the percentage taken from future sales. A fixed fee is added to your cash advance and this is usually 10-35% to give you the total amount you need to repay. There is no other set-up, admin, documentation fee - that’s it. For example, if you take a £10,000 advance with a 15% fee, you would have to pay back £11,500.
How are repayments made?
You agree to give a small percentage of your PDQ card takings towards repaying the advance. This is usually 10-20%. Your system is set up and repayments are automatically deducted from each transaction, so you don’t have to make a weekly/monthly payments. For example, if the deduction percentage was 15% and someone spent £100 in your business, you would get £85 and £15 would go towards reducing the balance you have to repay. When the advance and fee is paid off, you go back to keeping 100% of all takings.
Do I have to change the company that processes my card payments?
No, you can stay with your current provider.
Does the deduction process mean it takes longer for me to receive the money I take on my card machine?
No, it shouldn’t. Your takings should still appear in your bank account 3 days after the payment was received. The only exception here is if you currently get your money on a next-day basis (HSBC and some other banks can facilitate this).
What if I need more finance later?
Business Cash Advance deals can be ‘topped-up’ once you have paid back about half or two-thirds of the advance you’ve taken. It remains a facility you can dip into in the future if you need more funds.
Can I get a Merchant Cash Loan if I don't take card payments?
We can look instead at a Revenue Advance (based on sales) or a Short Term Unsecured Business Loan. Call us on 01494 410 125 to discuss.
Are there other business finance options available to me?
Yes, we have a wide range of business finance options. Please call us on 01494 410 125 if you’d like to know more.
How does your business qualify?
You must make the majority of your revenue through card terminals and you must have been taking card payments for at least 6 months. Your credit history is not very relevant. Unfortunately, we don’t deal with start-ups as we do need to see at least 6 months’ card payment history.
How much time do I have to repay?
There are no deadlines. It takes as long as is required, though typically we see most advances paid off within 6-9 months.
How quickly can I get funding?
An application only takes 10-15 minutes to complete, and can take a number days to be assessed by a lender. Once approved, some processors allow the advance to be paid to you within 3-4 days.
Does it matter if my business is a sole trader?
This is not a problem. A merchant cash advance is available to your business if it’s registered as a sole trader, partnerships or a limited company.
What security is required?
None, though you may be asked to give a Personal Guarantee. This is an unsecured form of finance. This means you don’t need to be a homeowner, you don’t need to put any assets on the line and you won’t be asked to supply a guarantor.
What can I use the Cash Advance for?
There are no restrictions on what you can use the advance for as long as it is legal and for your business. This means you can take a merchant cash advance to buy stock, do refurbishments, pay a bill, catch up on VAT payments, invest in marketing or whatever you need it for.
Is this a loan?
No. Technically speaking it is not a loan. What you are doing is selling an amount of your future card takings for a fixed price today. These future takings are ‘sold’ incrementally transaction by transaction via the deduction percentage you agree to while you get a cash payment today for them.
Are there fixed monthly repayments?
Will applying affect my credit score?
Can I apply if I have bad credit?
Can I repay early?
What security is required?
Can I have two Merchant Cash Advances?
Choice Loans is a broker, not a lender. We will connect you with a lender suitable for your needs or, if appropriate, a specialist broker. We do not charge you an upfront fee but, if your application is successful, a broker commission may be charged.
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