Merchant Cash Advance

What is a Merchant Cash Advance and how does it work?

What is a Merchant Cash Advance?

A Merchant Cash Advance (MCA), or Business Cash Advance, is a type of short term business loan. The MCA provider gives a business funds in exchange for a small percentage of future credit and debit card sales. This is then paid back to the provider in instalments.

How does a Merchant Cash Advance work?

Generally, the MCA provider will evaluate previous card sales and offer an advance in relation to the value of an average month's sales. Then, the business pays the provider a portion of daily card sales every day until the full amount is fulfilled (the initial capital plus the fee for using the facility).

How much you pay back in total will depend on fees and repayment percentages. Fees could include set up fees and broker fees, so it's important to bear these in mind when considering the overall cost of the MCA.

The repayment percentage refers to the agreed amount, or percentage of sales, which you pay back. For example, if your agreed repayment percentage is 10% and you make £10,000 in card sales in January, you'll pay back £1000 that month (plus fees), split across daily payments. If you make £15,000 through card sales in February, you'll pay back £1500 that month (plus fees).

Essentially, the repayment percentage remains constant whilst the actual amount you pay back fluctuates in proportion to your card terminal sales figures.

What are the pros and cons of an MCA?

The MCA may be a viable form of business finance for SMEs with fluctuating income, like cafes, B&Bs, and retailers, who need money to keep things ticking over during off-peak or quieter months. It’s therefore a good option for any business which relies on card machines and sees a high percentage of card transactions during the average month, as it can help them better manage cash flow.

Moreover, because the payment is taken directly from the card terminal provider, you never need to make payments yourself. They're automatically taken at source, much like income tax being paid before you receive monthly wages, so you don't have to worry about keeping up with repayments. There's also no need to provide a property or valuable business assets as collateral when taking out an MCA.

However, if you’re interested in applying for business finance in the form of an MCA, remember that this form of finance can be problematic for businesses that take sales by other means, not just by using card terminals. The amount an MCA provider can lend to you is calculated based on your total card sales, rather than your total sales across all payment methods, and therefore you may be limited in how much you can borrow. So, if you invoice customers, or prefer a fixed repayment once a month to keep track of total repayments to date, the MCA may not be the best option for your business.

There are also usually lots of restrictive covenants in the average MCA contract, meaning you may be up against strict rules outlining that you must not interfere with your card sales to impact repayments. This could mean that you're unable to give discounts or deals to customers who pay with cash.

Alternatives to a Merchant Cash Advance

MCAs are just one of many alternatives to traditional bank loans. However, bear in mind that you also have access to other financing options boasting competitive interest rates, such as Fleximize’s range of flexible business loans. These can be tailored to your business, and you can make use of perks such as repayment holidays and top-ups. 

We also offer revenue-based finance. This type of small business funding calculates the size of the loan and repayment terms based on all sales – it’s not limited to card payments. This increases the potential lending amount and funding options available to your business. If you’re interested in revenue-based financing, just speak to one of our relationship managers during your application process.

Our loans also have other advantages for business owners:

1. Borrowing money using an MCA can be costly with set-up fees, inflated costs of borrowing and early repayment charges. Fleximize’s business loans have no set-up fees, and there’s no charge for early repayments.

2. You'll also have the benefit of top-ups and repayment holidays throughout the term of the loan. When repaying an MCA, your options are quite inflexible, with money taken by the provider each day. Our products, however, only require monthly repayments, giving borrowers more breathing space.

3. As with all Fleximize loans, the application is quick and easy – we'll give you a decision in 24 hours and money could be in your account within 48 hours.

Apply for a flexible business loan today

Whether you run a high street shop or a seaside café, our business loans will provide the flexibility to let your business grow and thrive.

Call Fleximize on 0207 100 0110 today and you could have the funding you need in as little as 48 hours. Or click on the below Apply Now button to take advantage of our quick and easy online application process.

Get started: Apply now