What is a Merchant Cash Advance?
A merchant cash advance (MCA) is a type of commercial finance most suited to B2C organisations such as shops, hairdressers, beauty parlours, pubs and restaurants. This is because an MCA uses payments made via a card payment terminal to secure the loan and also to process repayments of the borrowing.
A merchant cash advance allows the business to borrow against their history of payments via the card terminal. For businesses that have a high-turnover or card terminal sales this type of borrowing can be relatively easy to secure. When a fast cash injection is required an MCA could be the solution if your business meets the criteria, and your takings via the existing terminal are enough to cover the amount of borrowing that is required. If existing takings via the terminal are not enough to cover the amount of loan required it would be worth exploring alternative finance options such as a business loan.
MCA Key Facts
Cash advance value is usually limited to approximately one month’s worth of previous card transactions. This means that if on average you take £5k per month, this is the value of borrowing that you could expect via a merchant cash advance. If you needed more that you average monthly sales, this type of lending is unlikely to be suitable for your business. As repayments are made via a percentage of sales, usually 10%, you can control future cashflow and in the event of a slower than average month outgoings would not be adversely affected. Interest is added onto the loan in advance, meaning that you can make an informed decision and know how much you will repay in full before agreeing to the merchant cash advance.