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Merchant Cash Advance for Electricians
Working in a sector tied by rigid compliance that simultaneously demands flexible, reactive professionalism can be difficult. Making sure that money exists at the right time to keep the business moving requires careful balance, especially when payments can be delayed without warning, whether this is through client inefficiencies or a lag with testing and certificate sign-off.
Fast, reliable funding that can be obtained without a long application process or complicated records evaluation can be an important lifeline for electricians at all levels of business.
A Merchant Cash Advance (MCA) can provide that speed and consistency, offering access to funds today that are trusted to come in tomorrow. It bridges a gap where a short-term need could result in amplified problems and enables electricians to keep the business running without resistance.
Read our comprehensive guide below to see how merchant cash advances could benefit electricians.
Uses of Merchant Cash Advance for Electricians
Choosing a merchant cash advance in the wrong circumstance can be unnecessarily expensive. However, applied correctly, merchant cash advances can offer significant benefits for electricians.
Clifton Private Finance can provide the right guidance to help you find the funding solution for your business. We discuss your individual needs with you to build an accurate understanding of your business needs, advising MCAs only when they’re the right choice for you.
MCA for Compliance Delays
A merchant cash advance can offer a much-needed hand if you find a key payment delayed due to compliance complications.
MCA provides short-term funding that can help you bridge that gap between the job being completed and payment coming through. This means subcontractors can be paid, suppliers’ invoices are met, and business goes on as usual.
For card transaction heavy businesses, the MCA can be structured so that the bulk of the advance is cleared when that expected payment finally clears, removing any worry and strain.
Merchant Cash Advance for Materials
While supplier invoice and payment terms provide a measure of breathing room between materials being bought for a job, and the customer payment clearing, often that breathing room is just a little too small.
This can be because:
- Work is for a customer with longer payment terms
- Materials prices are in flux, and cost is currently low
- Shortages are predicted
- New materials are needed unexpectedly and must be obtained without delay
Here, a merchant cash advance can offer support, allowing you to meet your obligation to your suppliers without delay, maintaining good relationships and reducing friction.
MCA for Call-Out Readiness
If you provide emergency services to your customers, then making sure the vans are always stocked with standard equipment, spare parts and general supplies is important. Merchant Cash Advances can help you manage cash flow so that vehicles are always ready for call-out, irrespective of other financial concerns.
MCA for Equipment Maintenance
Should a key piece of equipment require repair, any delay can have a knock-on effect on workflow and your business’s profitability.
Merchant cash advances can provide the money needed to make immediate repairs or even replace equipment at very short notice, making sure your engineers are able to do their work consistently and reliably.
An Example of MCA
Geoff and Suze run a medium-sized electrician firm, GSzElectric. They have ten full-time engineers and eight support staff, as well as several regular subcontractors. Their work is split between 65% domestic customers, who pay by card, and 35% larger business clients who pay invoices by bank transfer.
When an expected business customer’s payment is delayed due to a late-stage failure in testing, Suze finds they are £120,000 short to meet their payroll and office running expenses that month. An existing secured business loan, as well as a significant fleet leasing agreement, means that traditional loans are currently out of reach for the company.
While the MCA takes almost a full year to repay, because the cut comes only from the card transactions and fluctuates in line with them, the cash flow pressure on GSzElectric is acceptable and weathered reasonably.
With the money coming in from B2B clients, Geoff and Suze maintain liquidity and can invest in further expansion once the merchant cash advance is repaid.
The Quick Pros and Cons of MCA
Merchant cash advances should be considered a short-term solution. While the relaxed repayment system means there’s no obvious downside to paying it back slowly, over-reliance can tie up your finances and stifle growth. Paying it off quickly is advisable, and having the ability to do so is a sign that your turnover is healthy.
Some advantages and disadvantages of Merchant cash advances include:
Merchant Cash Advance Pros and Cons
|
Consideration |
Pro |
Con |
|
Factor rate |
The factor rate is easy to understand and set, meaning there’s no interest being generated in the background. |
Factor rates can be quite high - a rate of 1.2x means you’ll pay back 20% more than your advance. Some short-term business loans do work out cheaper. |
|
Holdback repayment |
The payment ebbing and flowing with your income stops any month becoming too tight. |
The repayment can feel like a constant drain on income and an unexpected high-value month results in a large repayment, rather than lots of free capital for use. |
|
Term length |
With no set term, MCA is flexible and low-worry. |
If the MCA is allowed to drag on, it can become a constant strain on the business. |
|
Application criteria |
Leaning more on card transaction history, MCA opens doors for businesses irrespective of credit scores or existing loan obligations. |
Only your card transaction history can be used to secure the funding. A strong client who pays through bank transfer won’t help your application and can’t be leveraged. |
|
Application speed |
Merchant cash advance is fast - cash can often be available within 48 hours. |
No downside. |
Alternatives to Merchant Cash Advance
What are the other tools in the toolbox? As a specialist business finance broker, your Clifton Private Finance adviser can discuss the options available to your business and tailor solutions to fit. We’ll use merchant cash advances where appropriate and explore alternatives at other times.
Some options for electricians include:
Secured Business Loans
A longer application process makes a secured business loan a poor fit for businesses that need to meet an immediate cash flow challenge. However, when it comes to longer-term investment and expansion, they can represent a strong alternative.
For growth-based strategies, secured business loans are typically cheaper than an MCA, and can often raise larger amounts of capital.
Revolving Credit Facilities
A specialist revolving credit facility can provide ongoing support that’s flexible and provides you with a secondary fund that you can ‘dip into’ when needed. You can also repay at a rate that works for your business cash flow.
For single-use, short-term advances, merchant cash advance is typically cheaper and easier to obtain. In contrast, a revolving credit facility is a medium-term alternative for consistent funding availability.
Invoice Finance
Merchant cash advance is only available to electrician businesses with significant card transaction volume. This makes it suitable for B2C businesses who deal directly with domestic customers. Larger-scale companies working with business clients, however, may benefit from invoice finance.
Designed to use outstanding unpaid invoices as collateral for funding, invoice finance offers B2B customers a similar flexibility to MCA, bridging the gap between an invoice being issued and the long payment terms before the money is cleared in your account.
Asset Finance
Merchant cash advances are a poor fit for businesses looking to buy vehicles or large-scale specialist equipment. For these specific needs, asset finance - which includes vehicle leasing and equipment contract hire- offers a well-structured, low-cost solution.
Developed to spread the cost of investing in capital assets over multiple months and years, asset finance gives you access to the latest equipment and technology, with leasing and loan-based ownership options.
Merchant Cash Advance with Clifton Private Finance
Clifton Private Finance is a whole-of-market business finance broker. We understand the wide spread of funding solutions available to your business to help you make an informed decision when looking for finance.
When you discuss your needs with a Clifton Private Finance adviser, you get:
- Specialist, experienced advice
- Access to the whole UK market of banks and specialist lenders
- Finance solutions tailored to your true business needs
- An unbiased comparison of the available options to find the best rates and fit for you
- Help with your application, including a comprehensive pre-approval assessment
If you’d like to learn more about merchant cash advance and explore how it might help your electrician business, book a consultation with Clifton Private Finance today.
