A merchant cash advance is a flexible finance option that is unsecured and usually short-term. It is generally used for the management of cash flow, refurbishment, growth or purchasing new stock. A loan is offered with an agreement on the total amount repayable, based on a business' annual/monthly card terminal revenue, to ensure the repayment schedule is manageable and payments are only made as you earn. There are different types of advances available, and repayment time depends largely on the amount of revenue earned, which can make it quite difficult to compare different forms of merchant cash advance.
- Why your business might need a merchant cash advance
- How to evaluate types of merchant cash advance
- How Capify's MCA stacks up
Why your business might need a merchant cash advance
A merchant cash advance is best suited to industries that take a significant number of debit card/credit card transactions per month, such as bars, restaurants and many other customer-facing companies in sectors like retail or even nail salons. One of the eligibility criteria is the ability to predict a steady customer flow.
It is also a good option for businesses that have a cyclical stream of revenue. For example, there is often a spike in companies seeking to compare different merchant cash advance offers ahead of seasonal events like Christmas. Furthermore, it can be a great choice if you are getting a new client set up or launching a new product line, because you can get a sizeable lump sum at short notice. It can give you financial breathing space if a problem like a broken water pipe occurs and needs to be quickly repaired, and it only requires you to fill out an application and supply a few bank statements to get things going.
How to evaluate types of merchant cash advance
It’s essential that you have a good understanding of the costs and terms of repayments with any form of merchant cash advance. You also need to know how much funding is available to you and how quickly the funds can be released. A good lender should have certain certifications under their belt, and client feedback should play a role in your decision-making. Here’s how to evaluate the key attributes:
Costs: A merchant cash advance has three primary costs that you need to be aware of:
- 1. The factor rate – this is the multiple of the advanced sum that you will have to repay. This amount doesn’t change, regardless of how quickly you repay the advance. The average factor rate typically falls between 1.2 and 1.5, meaning that for every £1 advanced, a business will have to repay £1.20 to £1.50. This differs from APR in that you can’t save any money by repaying early.
- Holdback percentage – with a higher holdback percentage, your MCA provider will take out more from your daily credit card cash flow.
- Additional fees – many MCA providers place additional fees on the transaction, including advance fees and setup fees. These can work out to be as much as 5%, or sometimes even more, so you must take note of the additional fees a provider charges.
Repayment terms: Repayment terms include the period of repayments, meaning the length of time you are given to pay back your advance, including the factor rate. It also covers the average holdback percentage, which means the amount of your daily credit card receipts that the lender collects for repayment of the advance.
Eligibility criteria: These are the factors that must be met to qualify for a merchant cash advance. Some merchant cash advance lenders will have minimum credit score requirements, but this is not a given. The typical criteria include:
- The length of time your company has been in business
- The total amount of your daily credit card receipts, or your gross monthly revenue
Time to funding: This means the amount of time between a successful application and the receipt of the funds. Many lenders will provide same-day funding, so look for this if you need the capital quickly.
Customer reviews: Look at the lender’s profile on sites such as Trustpilot, Feefo, Google Reviews to get an idea of what past customers think.
Time in business: Find out whether or not the lender is an established player on the market.
How Capify's MCA stacks up
So, given all the attributes to evaluate, how does Capify address all the questions you need to be asking?
Cash advance amount: We lend anything between £3,500 and £500,000.
Costs: We can offer a highly competitive factor rate based on your business.
Repayment terms: With Capify, the repayment terms are tailored to your business. The repayment percentage from your credit card transactions will be determined by what your business can afford.
Eligibility criteria: With Capify, you only need to have been trading for a minimum of six months. We need you to be taking a minimum of £5,000 per month in card transactions. We do look at your credit score, but only as part of a holistic view of your overall business.
Time to funding: We can provide funding within 24 hours, and offer same day payment where possible.
Customer reviews: Our customers have great things to say about us. Just check out our Trustpilot reviews – customers appreciate our personable service and user-friendly process.
Time in business: We’ve been offering merchant cash advances for 10+ years, and are actually one of the original MCA lenders. Our offices can be found all around the globe – we are the definition of an established player in the market!
Making the right choice when comparing merchant cash advances
A merchant cash advance is a great finance option when your business needs fast capital. However, it can be quite easy to get a bad deal that could leave your business hurting in the long run. Use the advice in this article when looking for what types of merchant cash advances are available and you won’t go far wrong. At Capify, we have unrivalled expertise in MCA lending, and will be happy to answer any questions you may have – just drop us a line and we’ll have a chat.
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