How does a merchant cash advance loan work?
A merchant cash advance (MCA) or business cash advance, is a non-traditional form of business funding. An MCA, can provide a business with an initial cash amount that is reimbursed by deducting a portion from your debit and credit card sales, along with a fee.
This type of financing can be particularly appealing to businesses that experience high volumes of card transactions, such as restaurants or retail stores.
Merchant cash advance loans typically start from £2,500, with some lenders providing up to £1 million based on your business turnover. They therefore cater to businesses of all sizes.
Repayments are made with the lender deducting a percentage from each payment that you receive via card terminals or online e-commerce. You will agree on the repayment percentage in advance, generally ranging from 10% to 20% of each sale processed.
Depending on the volume of transactions processed, you can potentially repay the advance faster, reducing the total interest paid. Some merchant cash advance lenders may include a clause, however, specifying a future date for repayment.
If your business takes card payments or online commerce, with balances showing on bank statements, then you could be eligible for an MCA.
How to apply for a merchant cash advance loan
The process of applying for a merchant cash advance loan is simple.
First, share details of your business’s monthly credit card sales with us. We’ll then work with our extended portfolio of funders to find the perfect lending partner for you.
The lender will then offer a lump sum based on your monthly credit card sales – typically between 50% and 250% of monthly sales.
Instead of fixed repayments, a percentage of daily sales is automatically taken until the advance is repaid. The total repayment is most often calculated using a factor rate.
Because payments adjust based on daily sales, your business can benefit by repaying a higher amount on busier days and paying less on quieter days.
Need help? Call us on 0191 410 4776
The benefits of cash advances for business owners
Quick decisions
Merchant cash advances provide businesses with quick access to capital. Thanks to their quick processing time, applications can usually be turned around within 48 hours, but it may be even faster.
Being an existing merchant is advantageous – it clears the initial obstacle since lenders have stringent requirements before permitting card transactions through a terminal.
Suitable for businesses with limited assets
Merchant cash advances are a great solution for businesses with limited assets but a high volume of card transactions. This option offers a way to secure immediate funding for your business, which is then repaid through your card machine transactions.
Flexible terms
Merchant cash advances differ from traditional business loans. Instead of dealing with a loan amount, interest rate and term, a cash advance involves selling future sales to the lender at a discount. Therefore, your repayments are directly linked to the amounts processed through your card terminal; you reimburse a percentage of your customers’ card transactions.
This repayment method can be beneficial during slower trading periods, especially for seasonal businesses. This approach could be an ideal fit for your business as your payments align with your customer volume and profit levels.
Flexible uses
The payment processing firm will not specify how you spend the advance. Whatever you spend it on should be good for the business and, in turn, hopefully increase your bottom-line profitability and overall performance. You can utilise it as a cash flow injection, use it to buy equipment, decorate your premises, take on more staff and more.
Works alongside other financing
If you currently have fixed-term loans, or have utilised other credit options with a bank but require additional credit for your business, a payment advance can be a valuable supplement. Consider it as a line of credit that complements your existing funding sources.
Alternatively, if this is your sole loan and another lender observes your responsible management of this facility, it could enhance your chances when seeking additional loans.
Merchant cash advance or a traditional loan?
The unique benefits of merchant cash advances make them a lucrative and flexible facility for businesses that are heavily reliant on card payments. However, depending on your business’s specific circumstances, other forms of asset or commercial finance may be better suited to you.
For example, for shorter-term loans of higher values, more traditional forms of commercial finance – such as bridging finance – may be better suited to your business needs.
Similarly, if card payments are used alongside invoicing within your business, merchant cash advances may be used as an additional line of credit alongside invoice finance or cash flow funding.
Choosing merchant cash advance direct lenders
Anglo Scottish’s wide portfolio of funders enables us to find your business the perfect merchant cash advance lenders. This means that we can offer a wider range of lending terms than traditional banking institutions, which often carry strict lending criteria.
When you choose Anglo Scottish as your merchant cash advance broker, you can gain access to terms that are appropriate to your business size and your business needs.
Our blog on merchant cash advances for SMEs provides more information about this.
Frequently asked questions about merchant cash advance loans
Can I keep my existing card machine provider?
In most cases, yes, you can. Many lenders will try to collaborate with your current provider. Yet, certain providers limit the lenders you can access. If this occurs, you might need to exchange your current terminal for one from a different provider to meet the loan requirements.
Am I eligible for a merchant cash advance?
If your business can accept card payments from customers and meets the minimum volume requirement the lender sets, then the answer is yes. Here are the essential requirements:
- Minimum volume of card payments.
- Sufficient profitability to demonstrate loan repayment capability.
- Bank statements or other financial records, like audited accounts.
Can a sole trader get a merchant cash advance?
Yes. If they meet the minimum criteria, sole traders, partnerships and limited companies can all apply.
HOW IT WORKS
Five steps to easy finance. Find out how we get you your finance lease below.
Decide
DECIDE
Decide on the asset you need to help your business grow
Talk
TALK
Talk to us, tell us about your business and the asset you wish to acquire.
Approval
APPROVAL
We will reach out to our panel of lenders on your behalf to gain approval.
Sign
SIGN
Sign your document, once approved we’ll send you your documents to sign. After which we will transfer payment to your asset supplier
Final checks
FINAL CHECKS
We’ll do a final check to make sure everything is running smoothly, and you can start reaping the benefits of your new asset.
Get in touch
A merchant cash advance can be hugely beneficial to businesses of all sizes. The flexibility provided means that any business can enjoy the benefits of spreading the cost of their investment.
However, if this option is not right for you, we offer a vast range of commercial finance and asset finance solutions, so you can get an arrangement that perfectly suits your requirements.
To find out which finance solution is right for you, get in touch today. Contact our team to discuss your options or simply have an initial chat. We look forward to hearing from you!
Need help? Call us on 0191 410 4776