Merchant Cash Advance
Flexible finance based on your business's projected card sales:
- Borrow from £5,000 to £1m
- Sole traders, partnerships & limited companies accepted
- Minimum of 3 months of trading required
- Term - 1 to 18 months
- Minimum turnover - £5,000 card sales per month
- Transparent and affordable fees
- Apply in 5 minutes or less
In today's fast-paced business world, cash is king. Small businesses and entrepreneurs often need quick access to funds to help them scale, meet payroll, or handle unexpected expenses.
Enter the Merchant Cash Advance (MCA), a financial solution gaining popularity among business owners. Sometimes referred to as PDQ finance, Card machine loans or business card loans, this flexible working capital finance is becoming increasingly popular with small and medium-sized business owners.
Our comprehensive guide will cover everything you need to know about MCAs, their work, and their suitability for your business.
Our video below explains what Merchant Cash Advances are and how they can be used:
- Receive funds within 24 hours of approval
- No collateral or assets required
- Transparent pricing with no additional fees
- Repay through a fixed percentage of future credit and debit card sales (simple repayment structure)
- Repayments can adjust to your business's busy and slow periods
- We provide to retail, hospitality, leisure, restaurants, pubs, bars, online businesses and online shops, salons, garages, hotels, and more
- No fixed repayment terms
- Pay back less during slow times and faster during busy periods
- Customised costs based on your business's performance
- Quick application process with step-by-step help
- Works with various online payment providers
- Suitable for seasonal businesses
- We compare quotes from multiple lenders to find the best deal
- Provider-specific policies for loan renewals
Recent Case Studies
A Merchant Cash Advance (MCA) is an alternative business financing option for companies needing quick capital access. In contrast to traditional business loans, an MCA offers business owners a cash advance in exchange for a percentage of future credit card sales.
The MCA provider collects a fixed percentage of daily or weekly sales until the advance, and the agreed fees are repaid.
So one of the key attractions is that repayments are based on your monthly card sales. If debit and credit card sales are down for a month, then your repayments also decrease - making cashflow less of a headache for you to handle.
A merchant cash advance (MCA) is a flexible business financing solution that can be used for various purposes to support your growth and operational needs.
Some common uses for an MCA include:
- Stock purchases - you can use the funds to buy stock in bulk, re-stock popular items, or invest in new products to expand your business offering
- Equipment upgrades - Upgrade outdated equipment or invest in new technology to improve efficiency, productivity, and the quality of your products or services
- Working capital - An MCA can provide operating capital to cover day-to-day expenses, such as rent, utilities, payroll, and supplies, during times of slow sales or seasonal fluctuations
- Marketing and advertising - You can use the funds to boost your marketing efforts with an MCA by launching new advertising campaigns, improving your website, or attending industry events to attract more customers
- Expansion and renovation - Use the funds to expand your business, whether opening a new location, renovating your current space, or adding new services to meet customer demand.
- Debt consolidation - Consolidate expensive high-interest debts or short-term loans into a single MCA, potentially lowering your overall finance costs
- Paying tax bills - You can use funds to cover a VAT or corporation tax bill (corporation tax loan)
- Emergency expenses - An MCA can provide quick access to funds for unforeseen expenses, such as repairs, legal fees, or other emergencies
The minimum requirements to qualify for a Merchant Cash Advance (MCA) can vary among providers, but there are some standard criteria that most providers will consider when evaluating your application.
These typically include:
- Business age - MCA providers usually require your business to be operational for a minimum period, often three months to one year or more, to demonstrate financial stability and a consistent revenue stream
- Credit card sales volume - Since an MCA is based on your business's future credit and debit card sales, providers require a minimum level of monthly card sales to ensure you can repay the advance. This amount can vary but generally ranges from £2,500 to £5,000 or more per month
- Industry type - Some MCA providers may have restrictions on the types of industries they serve. They might avoid businesses in sectors with high volatility, high risk, or inconsistent revenue
- No active bankruptcies - Most cash advance providers will not approve an application if the business owner has an active default
- Business bank account - You'll need an active account to receive the advance and facilitate repayments
- Documentation - MCA providers will typically require various documents to assess your business's financial health, such as business bank statements, credit card processing statements, and identification
It's important to note that each MCA provider may have slightly different eligibility criteria, and some may be more flexible than others.
The MCA process
- Application - To start the process, a business owner applies for an MCA with a provider, submitting information about their business and card sale volumes.
- Approval - The MCA provider reviews the application, assessing the business's financial health and debit & credit card sales to determine eligibility.
- Funding - Once approved, the MCA provider transfers the agreed-upon amount to the business's bank account, typically within 24-48 hours.
- Repayment - The MCA provider collects a fixed percentage of the business's daily or weekly card sales, continuing until the advance and fees are repaid.
What is the difference between a loan and a merchant cash advance?
While both loans and MCAs provide UK businesses with funds, there are some key differences:
- Repayment - With a loan, you make fixed monthly payments, while an MCA is paid back through a percentage of daily or weekly debit & credit card sales. This flexible repayment structure can be advantageous for businesses with fluctuating sales.
- Approval Process - Loans often require good credit scores and collateral, while MCAs typically have a more lenient approval process, focusing on the business's card sales instead of credit history.
- Interest Rates - Loans usually have fixed interest rates, while MCAs come with factor rates, which can make them more expensive.
- Funding Speed - MCAs are known for their quick approval and funding process, while loans can take days or weeks to approve.
Several factors can affect the cost of a business cash advance, including the advance amount, the factor rate, and the business's daily debit and credit card sales.
Here's an example to help illustrate what a business owner might pay for an MCA facility:
Suppose a shop owner needs an MCA of £20,000 to invest in stock and an online marketing campaign. The MCA provider offers the funds with a factor rate of 1.25.
To calculate the total repayment amount, the advance amount is multiplied by the factor rate:
£20,000 * 1.25 = £25,000
The total repayment amount for the MCA would be £25,000.
Let's assume the retail shop's average daily credit card sales are £1,000. The MCA provider sets a retrieval rate of 10% for the repayments.
To calculate the daily repayment amount, the average daily credit card sales are multiplied by the retrieval rate:
£1,000 * 0.10 = £100
The shop owner would repay £100 daily until the total repayment amount of £25,000 is reached.
To calculate the approximate duration of the repayment, the total repayment amount is divided by the daily repayment amount:
£25,000 / £100 = 250 days
In this example, the retail shop owner would repay the MCA in approximately 250 days.
Keep in mind that the repayment duration may vary due to fluctuations in daily debit or credit card sales.
What is the factor rate used by a merchant cash advance provider?
The factor rate used by a Merchant Cash Advance (MCA) provider is a multiplier that determines the total cost of the advance.
It expresses the cost of borrowing instead of an interest rate, as with a traditional business loan.
The factor rate typically ranges from 1.1 to 1.5, depending on the provider, the borrower's perceived risk, and other factors such as the duration of the advance and the industry. A higher factor rate indicates a higher cost for the MCA.
To calculate the total repayment amount, the advance amount is multiplied by the factor rate:
Total Repayment Amount = Advance Amount × Factor Rate
For example, if a business owner receives an MCA of £10,000 with a factor rate of 1.3, the total repayment amount would be:
£10,000 × 1.3 = £13,000
In this example, the business owner must repay £13,000 for the £10,000 advance.
Is a merchant cash advance a good option for my business?
Whether an MCA is a good idea for your business depends on your circumstances.
MCAs can be attractive for businesses with:
- Seasonal fluctuations in revenue
- The need for quick access to funds
- Poor credit scores
It's essential to weigh the pros and cons before committing to an MCA.
Pros of MCAs
- Fast funding process - Cash advances can provide businesses with funds within 24-48 hours.
- No collateral required - MCAs are unsecured, meaning you won't need to put up assets as collateral.
- Flexible repayment structure - The repayment amount adjusts based on your card sales, providing flexibility during slow periods.
Cons of MCAs
- High costs - MCAs have higher factor rates than traditional business loans, which can make them more expensive in the long run.
- Potential cash flow issues - The daily or weekly repayment can strain a business's cash flow, especially during slow periods.
- Debt cycle risk - Some businesses may find themselves taking on additional MCAs to repay existing ones, leading to an unhealthy cycle of debt that can be challenging to break.
Watch our case study video below on how we secured a £50,000 Merchant Cash Advance for a family-run cafe:
Do cash advances hurt your credit score?
MCAs do not directly impact your personal credit score, as they are not reported to credit agencies like traditional loans.
However, if you default on the MCA, the provider may take legal action or sell the debt to a collections agency, which could negatively impact your credit score.
What is the maximum amount for a merchant cash advance?
The maximum amount for an MCA depends on your business's monthly debit or credit card sales.
Typically, MCA providers will offer an advance of up to 250% of your monthly credit card sales.
For example, if your business processes £10,000 per month, you could be eligible for a cash advance of up to £25,000.
The maximum merchant credit advance will also depend on the provider's terms and your business's financial health.
Do you pay back a cash advance?
Yes, you do pay back a merchant cash advance.
A fixed percentage of your daily or weekly future card sales is used as repayment, known as the "holdback rate."
The provider will continue to collect this percentage until the advance, plus the agreed-upon fees, are repaid in full.
Can you repay a merchant cash advance early?
You can generally repay a Merchant Cash Advance (MCA) early.
However, whether or not there are benefits to early repayment depends on the terms and conditions set by the MCA provider.
Since an MCA uses a factor rate to determine the total repayment amount, the overall cost is typically predetermined and doesn't change, even if you repay the advance early.
Some MCA providers might offer a discount or a rebate on the total repayment amount for early repayment, while others may not provide any financial benefit for repaying early.
Business owners prioritising repaying their loan early should talk to the merchantcashadvance provider before signing an agreement and explore other financing options that may offer better conditions for early repayment.
Is merchant cash advance expensive?
MCAs are generally more expensive than traditional business loans due to their higher factor rates. Typically, factor rates range from 1.1 to 1.5, so you could pay 10% to 50% more than you originally borrowed.
Moreover, some MCA providers may charge additional fees, such as setup or processing fees.
Is merchant cash advance safe?
While MCAs are a legitimate financing option, they can be risky for some businesses.
Researching MCA providers, reading customer reviews, and comparing offers are essential to ensure you're choosing a safe and reputable provider.
Who uses merchant cash advances?
Businesses that commonly use MCAs include retail stores, restaurants, hair salons and service based businesses with a high volume of card sales. These businesses often have seasonal fluctuations in revenue, making the flexible repayment structure of an MCA a viable option.
However, any business needing quick access to funds and with a steady stream of card sales may consider an MCA.
Is an MCA an unsecured loan?
A business's MCA is not viewed as a loan but rather as a sale of a portion of its future credit card sales.
Since the MCA provider is purchasing future receivables, there's typically no collateral required, making it an unsecured form of financing.
However, some business cash advance providers may require a personal guarantee, which could put your personal assets at risk if you default on the MCA.
What happens if you default on an MCA?
The consequences can be severe if you default on a merchant cash advance facility.
The MCA provider may:
- Take legal action to recover any outstanding funds owed.
- Delegate the debt collection to a collection agency, which could harm your credit rating.
- Place a lien on your business's assets or seize them to recover the debt.
It's crucial to understand the MCA terms and conditions and plan to manage the repayments before accepting the funds.
Do I need to get a credit check to get an MCA facility?
The primary focus of a Merchant Cash Advance (MCA) is a business's credit and debit card sales.
However, MCA providers usually also perform a credit check on the business owner. This is part of their evaluation process.
The credit check helps the MCA provider assess the overall risk of providing the advance.
For loans under £50k for limited companies, just one director/owner may be required for the application. For loans over £50k, then all directors will need to be on the application, and they will all need to be based in the UK.
However, unlike traditional business loans, where a good credit score is often a primary requirement, MCA providers generally place less emphasis on personal credit scores. Their primary concern is the business's ability to generate consistent card sales to repay the advance.
It's important to remember that each MCA provider may have different application processes and requirements. While some may perform a credit check, others may not.
Can I get a merchant cash advance without business bank statements?
Most MCA providers need business bank statements to assess the applicant's financial standing before granting a Merchant Cash Advance (MCA). These can be provided manually (typically six months) or through Open banking.
Providing business bank statements may make it easier to be approved for an MCA.
Business bank statements provide a clear and concise picture of the business's financial health, which is essential in determining whether or not the applicant is eligible for an MCA.
Furthermore, the MCA provider will use the bank statements to verify the applicant's ability to repay the loan and assess the risk associated with offering the applicant an MCA. If you have been trading less than 6 months, then some providers will accept bank statements for just the last 3 months.
However, MCA providers may have different application processes and requirements. Some providers may be more flexible and willing to work with alternative documentation or consider other factors instead of business bank statements.
Getting a Merchant Cash Advance (MCA) with a bad personal credit score is possible.
MCA providers typically focus more on the business's performance, particularly its credit and debit card sales, rather than the owner's personal credit score when evaluating eligibility.
An MCA is based on the business's future revenue, and providers are more interested in the business's ability to generate consistent credit card sales to repay the advance. Due to this, MCAs are more accessible financing options for business owners with poor credit histories.
However, having a bad credit score might impact the terms of the MCA, such as the factor rate or the advance amount. MCA providers may view businesses with adverse credit as riskier, leading to less favourable terms.
Before opting for an MCA, business owners with bad credit should carefully consider the costs and repayment structure and explore alternative financing options that may suit their needs.
What to consider before getting a Merchant Cash Advance
Before deciding on a Merchant Cash Advance, evaluating your business's financial health and considering alternative financing options is crucial.
Here are some key points to think about:
Assess your cash flow
Analyse your business's cash flow to ensure you can handle an MCA's daily or weekly repayments. If your business experiences significant fluctuations in sales, an MCA's flexible repayment structure might be beneficial.
However, other financing options might be worth considering if you're concerned about managing repayments during slow periods.
Compare the cost of alternative financing options
Although MCAs can provide quick access to capital, they tend to be more expensive than traditional loans. Before committing to an MCA, explore alternative forms of business funding.
Review the MCA provider's reputation and customer reviews
Research the MCA provider and read online customer reviews to ensure they are reputable, reliable and have a good customer service history.
Look for providers with a proven track record of helping businesses in your industry and who offer transparent pricing and terms.
Seek professional advice
Consulting with your business accountant can provide valuable insight into whether an MCA suits your business.
They can help assess your financial health, review MCA terms, and suggest alternative financing options.
When searching for an MCA provider, it's essential to consider the following factors:
- Transparent pricing - Look for providers that offer clear and transparent pricing, including factor rates, fees, and repayment terms.
- Flexible terms - Seek providers that offer flexible repayment terms based on your business's needs and cash flow.
- Fast funding - One of the primary benefits of an MCA is quick access to capital. Choose a provider that can deliver funds within 24-48 hours.
- Reputable - Research the provider's reputation, read customer reviews, and ensure they have a track record of helping businesses like yours.
- Customer support - Choosing a provider that offers responsive customer support is recommended, as you may need assistance throughout the MCA process.
If you've decided that an MCA is the right finance option for your business, here's a step-by-step guide on how to apply:
- Research MCA providers - Start by researching various MCA providers to find one that offers competitive terms, transparent pricing, and a strong reputation. Consider factors such as funding speed, customer reviews, and the provider's experience within your industry.
- Gather necessary documentation - Prepare the required documents for your MCA application, including business bank statements, credit card processing statements, and financial statements. Some providers may also require proof of business ownership, such as a business license or tax identification number.
- Submit your application - Complete the MCA provider's application process, which may involve filling out an online form or contacting a representative directly. Be prepared to provide information about your business, such as its age, average monthly revenue, and credit card sales.
- Review offers - If your application is approved, review the MCA provider's offer, including the advance amount, factor rate, holdback rate, and repayment terms. Carefully read the contract and ask questions about any unclear terms or fees.
- Accept the offer and receive funds - Once you've agreed to the MCA terms, the provider will deposit the funds into your business bank account within 24-48 hours. Remember that the repayment process will begin when you start processing credit card transactions.
Can I get a same day merchant cash advance facility setup?
Yes, it is possible to get a same-day Merchant Cash Advance (MCA) facility set up in some cases.
MCA providers are known for their relatively quick approval and funding processes compared to traditional funding lines. Some providers can approve an application and provide the funds within 24 hours or even on the same day.
However, the speed of approval and funding can depend on several factors, including:
- The MCA provider's specific processes and requirements
- The completeness and accuracy of the application and supporting documentation
- The volume of credit and debit card sales your business generates
To increase the chances of obtaining a same-day MCA facility, ensure you have all the required documentation and information readily available, such as business bank statements, credit card processing statements, and identification.
Additionally, it's essential to research and select a business cash advance provider known for its fast approval and funding times.
When selecting an MCA provider, remember that the speed of funding is not the only factor to consider.
Whilst speed may be a primary consideration, you should also carefully evaluate the costs, terms, and repayment structure to ensure the MCA facility suits your business's needs.
You can often keep your existing Electronic Point of Sale (EPOS) card machine when you take out a Merchant Cash Advance (MCA).
However, this will depend on the specific MCA provider and their requirements.
Some MCA providers are flexible and can work with your existing card terminal machine, allowing you to continue processing credit and debit card transactions as usual.
In this scenario, the MCA provider will collaborate with your current card processor to set up the agreed-upon retrieval rate for repaying the advance.
On the other hand, certain MCA providers may require you to switch to their preferred card processing system or use their EPOS card machine to ensure seamless repayment of the advance.
This may involve additional setup, transition time, and potential costs of changing card processors or equipment.
Before committing to an MCA, discussing your existing EPOS card machine situation with potential MCA providers and understanding their specific requirements is essential.
Final Thoughts on Merchant Cash Advances
Merchant Cash Advances can be a viable financing option for businesses with strong credit card sales and a need for fast access to capital. However, consider the associated costs, risks, and repayment structure before committing to an MCA.
Research providers and compare alternative financing options. This will help you decide if an MCA is the best solution for your business's financial needs.
Get in touch...
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