What is a Merchant Cash Advance?
A merchant cash advance (MCA) is a financing option that allows businesses to borrow money in exchange for a percentage of their future credit and debit card sales. Should your business be approved, the lender will provide you with a lump sum of cash. You’ll then repay the loan, plus a fee, by allowing the lender to withdraw a percentage of their daily credit and debit card sales until it’s off.
The lender will typically advance a certain percentage of the business’s estimated future credit and debit card sales, usually between 50% and 150%. The loan amount, the percentage of future sales, and the term of the loan will vary depending on the lender and the business’s creditworthiness.
One of the benefits of a merchant cash advance loan is that it is relatively easy to qualify for, with less stringent requirements than traditional bank loans. It also allows businesses to borrow money quickly, which can be useful in situations where the business needs cash, fast.
What are the benefits of Merchant Cash Advance?
There are several benefits that come with applying for a merchant cash advance loan. These include:
- Easy Qualification: Merchant cash advance lenders typically have less stringent requirements than traditional banks, making it easier for businesses to qualify for financing.
- Quick Funding: Merchant cash advance providers can deliver funding quickly, which can be useful for businesses that need cash quickly.
- Flexibility: Businesses can pay back the loan based on a percentage of their daily credit and debit card sales, rather than a fixed monthly payment. This can be beneficial for businesses with fluctuating cash flow.
- No Collateral Required: Merchant cash advance providers typically do not require collateral, making it a good option for businesses that do not own property or have other assets that can be used as collateral.
- Merchant cash advances are typically short-term loans, with repayment typically taking place over a few months. This means businesses are not committed to long-term debt.
- Credit Score Not a major factor: Merchant cash advance lenders often consider the business’s credit card sales and revenue as the primary criteria for approval, not the credit score of the business owner.
- No Set Use of Funds: Merchant cash advances do not require specific use of funds, allowing the business owner to use the funds as they see fit.
How do I apply for a Merchant Cash Advance?
The process of applying for a merchant cash advance (MCA) will vary depending on the lender, but here are some general steps that you can expect to follow when applying for an MCA:
- Gather the necessary documents: Before applying, you will need to gather the necessary documents such as your business tax returns, bank statements, credit card processing statements, and personal financial information.
- Speak to your Account Manager at SME Loans: Our team of professional finance brokers can advise on eligibility, suitability and process.
- Complete the application: Once we have found a lender, you will need to complete the application, providing the lender with the relevant documents and information about your business and personal finances.
- Submit the application: Once the application is complete, you will submit it to the lender for review.
- Wait for a decision: The lender will review your application and decide about whether to approve or deny your loan. This process can take a few days, depending on the lender.
- Review the terms: If your loan is approved, the lender will provide you with the loan terms and conditions, including the amount of the loan, the percentage of future sales that will be withheld for repayment, and the term of the loan.
- Sign the agreement: Once you have reviewed and agreed to the terms and conditions, you will sign the loan agreement and receive the loan funds.
- Start making repayments: Once you have received the loan funds, you will begin making repayments by allowing the lender to withdraw a percentage of your daily credit and debit card sales.
How does Merchant Cash Advance work?
Merchant cash advance (MCA) works by allowing businesses to borrow money in exchange for a percentage of their future credit and debit card sales. Here’s how it typically works:
- The business applies for an MCA by providing information about their credit and debit card sales, as well as their business and personal financials.
- The lender will then evaluate the business’s creditworthiness and advance a certain percentage of the business’s estimated future credit and debit card sales, typically between 50% and 150%.
- The business will then receive a lump sum of cash, which they can use for any purpose.
- The business will then repay the loan, plus a fee, by allowing the lender to automatically withdraw a percentage of their daily credit and debit card sales until the loan is paid off. The percentage of future sales that will be withheld for repayment and the term of the loan will vary depending on the lender and the business’s creditworthiness.
- The lender will use a secure electronic payment processing system to automatically withdraw a set percentage of the business’s daily credit and debit card sales until the loan is paid off.
- Once the loan is paid off, the lender’s access to the business’s credit and debit card sales will end.
What are the alternatives to Merchant Cash Advance?
Alternatively, there are commercial options available which a business may want to consider. At SME Loans, we can help broker a variety of commercial facilities thanks to the diverse range of partners we work with. Financial products we can help broker include:
- Unsecured business loans
- Asset Finance
- Equipment Finance
- Vat Funding
- Working Capital Funding
- Small business loans
- Startup business loans
- Merchant Cash Advance
Why choose SME Loans?
Here at SME Loans, we recognise that over the last year businesses across the UK have been damaged due to the pandemic. That is why we are working closely with lenders to help broker the Recovery Loan Scheme to businesses in the UK.
As a financial broker, we aim to provide a quick and reliable service to help businesses find the funding that they need. We work with a panel of lenders that are able to provide a competitive financial products on the market. SME Loans is also authorised and regulated by the Financial Conduct Authority, which ensures we meet the correct compliance practices.
Frequently Asked Questions
If you still have questions regarding the recovery loan scheme, make sure to check out our FAQs below.
A merchant cash advance (MCA) is a type of financing option that allows businesses to borrow money in exchange for a percentage of their future credit and debit card sales.
Merchant cash advance (MCA) works by allowing businesses to borrow money in exchange for a percentage of their future credit and debit card sales.
We’re working with the entire lending market, giving us access to every merchant terminal lender. This allows us to recommend the most suitable option for each client.
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