Merchant Cash Advance (MCA) – All you need to know
Merchant Cash Advance (MCA) – All you need to know

The current economic climate means that many businesses face significant challenges when trying to borrow the additional capital they need to evolve and grow successfully. Whether you need additional cash to invest in more modern, efficient plant, or you’re looking to branch out in a fresh area and could do with some fresh stock, finding a lender can be difficult. A merchant cash advance could be the solution! Particularly suitable for smaller businesses or an enterprise that hasn’t been running that long, a merchant cash advance is a simple, versatile way of obtaining the borrowing your business needs to retain its upward trajectory.

What is a merchant cash advance?

A merchant cash advance is a sum of money which is advanced to a lender. Rather than repayment being taken directly from a bank account, or being a fixed sum each month, the lender collects an agreed percentage of card payments made through a card terminal. The borrowed cash can be used for any aspect of the business which needs it: from the purchase of capital equipment, machinery and supplies through to staff wages or bill payments. Once your merchant cash advance has been agreed, how your business spends the money is entirely up to you. Unlike a mortgage or vehicle purchase loan, a merchant cash advance has no expenditure parameters. This results in it being an adaptable, versatile form of finance that’s appropriate for many different types of business.

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How does a merchant cash advance work?

As indicated earlier, the main difference between a merchant cash advance and a traditional loan is that the loan amount, plus interest, is paid back on a percentage (factor) basis, rather than as a series of regular, equal instalments. Although there are minimum requirements around how many times a terminal is used (some lenders may also want to see that a large number of different customers are using the terminal, to reduce risk even further), the actual amount repayable each week or month is dependent on the level of sales. For example, if a pre-arranged repayment percentage of 15% is agreed, the borrower will take 15% from each card transaction. Normally the deduction is made automatically: transactions are processed in exactly the same way; the only difference in this example is that the amount which reaches the borrower’s bank account is 15% less than the amount which the customer paid.

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How safe is a merchant cash advance?

Provided you use a well-recognised, established company, an MCA arrangement is a fairly low-risk borrowing option. MCAs are not formally regulated, which is why it’s important to pick a provider that’s been running successfully for a few years and which has received positive feedback. Capify, for example, has been offering MCA arrangements to businesses for more than a decade. Why not take a look at the numerous positive reviews that we have received through TrustPilot? Like any other purchase you make, it’s important to do your research first to check that the agency you’re doing business with is a reputable one.

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Who are merchant cash advances for?

In order for a business to be accepted for a merchant cash advance from Capify, there are two main criteria which they need to satisfy:

(a) They need to have turnover of at least £5,000 each month.

(b) The majority of their payments need to be processed through a card terminal.

Provided those parameters are met, most legitimate businesses can be considered. Examples of the type of business that we commonly work with include: restaurants; garages; hairdressers; dentists; shops (including pet shops, boutiques and discount stores); garden centres; pubs; tattoo studios. Generally, merchant cash advances are for enterprises that may have difficulty obtaining finance elsewhere and who are looking for a fast, effective solution to their money borrowing requirements

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Merchant cash advances for debt consolidation

We are commonly asked if MCAs can be used to pay off existing debt. Whilst an MCA can be used for this purpose, it’s important to be clear that the MCA arrangement is being taken out in order to shore up finances and provide a constructive way forward. Using an MCA to prop up a failing business is unlikely to improve the situation unless appropriate positive changes have been put in place. We also advise against taking out more than one MCA at a time, as there is a risk that too large a percentage of your profits will end up being used to service your debt. We advise businesses who already have significant debt to seek external advice before taking on further borrowing.

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Settling your merchant cash advance early

The total amount which you need to pay back is set when you take out the advanced sum. That said, the length of time you take to pay off the total amount will depend on the value of the card transactions which your customers complete. Many businesses find that once they have spent the advance cash on the items or services they need to enhance their business, their customer base and the value of their sales increases. This enables them to pay off the amount they owe earlier than planned. If you decide on a Capify advance, you can apply to refinance once 60% of the original advance has been settled.

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Merchant cash advance calculator

An MCA calculator can be used to determine the approximate number of days it will take to repay the advance and the daily repayment amount. It will also provide you with information about the overall loan, including the financing cost and the effective APR.

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Types of merchant cash advances
Types of merchant cash advances

One of the advantages of opting for a merchant cash advance in preference to more traditional loan types is the degree of flexibility it offers. MCAs are customised to suit the needs of almost any business. Most businesses are eligible, provided they provide a legitimate service and have a customer base who largely use a card terminal to process their payments. MCAs are suitable for businesses of almost any size and can be used by fresh, start-up enterprises as well as more established companies. The amount which can be borrowed can be adjusted to suit your needs, as can the repayment duration and the percentage of card sales which is taken as repayment each week or month. If you want a versatile, straight-forward cash advance, an MCR is often the best solution.

Compare merchant cash advances

Currently there are a large number of financial borrowing products for businesses on the market. From short- and long-term loans through to unsecured or secured loans and B2B loans, there are numerous choices out there. If you’re considering an MCA, it’s important to be clear not only that an MCA is going to be the best option for your needs, but also that you are opting for an MCA provider that can provide you with the very best deal. We’ve taken a look at some of the key variables which can affect your choice of loan product, giving you the information you need to assist in good decision-making for your business.

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Merchant cash advance for UK businesses

Although recent figures show that 99% of private sector firms in the UK can be classified as small or medium enterprises (SMEs), it is these types of business that find they face the most barriers when it comes to accessing appropriate finance. Paradoxically, traditional lenders are reluctant to lend to SMEs, citing factors such as a lack of credit history, insufficient turnover or inadequate security as reasons to refuse a loan. MCAs help to fill the gap: with less onerous eligibility requirements than many loan providers, MCAs offer the accessible, flexible borrowing UK SMEs need to grow and thrive.

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Merchant cash advance for startups

One of the most vulnerable time periods for a business is when it’s starting up initially. Often a significant investment is needed to cover start-up costs. These may include the rental of premises, stock, equipment, relevant insurances and transport. Although clearly these outgoings are essential to the future success of the business, it’s unlikely that an MCA could be obtained to cover start-up costs, as there is no guarantee that the business will turn a profit once it’s operational. If you don’t already have the necessary finance to set your new business venture up, we suggest seeking advice from a local business adviser, as there are often start-up grants and funding available, depending on your location and individual circumstances.

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Merchant cash advance with no credit check

Although an MCA isn’t a loan as such, so doesn’t require a credit check, as responsible lenders, most MCA companies will insist on a credit check. The purpose of the check is to ensure that customers are in a suitable position to repay the borrowed funds, rather than being left in a difficult financial position as a result of borrowing. Capify judges each application on its own merits: a credit score is just one factor which is taken into consideration in reaching a decision on whether to lend or not. Even if you’ve got a poor credit rating or have had previous debt problems, it’s still worth applying for an MCA – in many cases, we can find a way to lend, even if your credit score isn’t optimal.

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Merchant cash advance with poor credit

Many people are surprised to find out that there is actually no definition of poor credit. A credit score is simply a number that’s calculated by a credit agency. The score is based on factors such as level of borrowing, number of defaults, late payments and similar variables. Each factor is assigned a numeric grading. The numbers are then totalled to give a credit score. People or businesses that have experienced financial difficulties in the past will tend to have a lower credit score. This doesn’t mean they can’t borrow, simply that lenders may not offer them the best rates of interest. MCAs are often available to businesses who have experienced significant financial difficulties in the past, so it’s always worth applying, even if your credit score is less than ideal.

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Quick merchant cash advance

Speedy access to finance is frequently a priority for smaller businesses: with less ready capital and a limited cash flow, often a business can go under in days unless a cash injection is forthcoming. Many companies offering MCAs are aware of this issue, which is why it’s often best to obtain finance fast when an MCA is used. Capify, for example, can arrange for your funds to be transferred on the same day that your application is approved, provided you get the necessary supporting evidence and paperwork back to them so that the underwriting procedures can be completed successfully.

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Cash advance for business owners

With more than 99% of the private sector consisting of small businesses, it’s little wonder that they play a key role in supporting the economy. Small businesses employ around 60% of the total private sector workforce. The annual turnover from UK SMEs is more than two trillion pounds each year! Considering the important role that they play, it’s vital that funding is available to enable smaller enterprises to thrive. MCAs offer an accessible alternative to high street lenders, giving businesses access to the funding they need. Finding appropriate finance to invest in a small business is notoriously challenging, particularly in the first couple of years of trading. Capify offers MCAs after only six months of trading, allowing fledgling businesses to obtain the funds they need.

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Credit card processing loan and PDQ loans

MCAs are just one of the financial products which bases repayments on factoring rather than an APR. Borrowers may also come across products entitled credit card processing lending or PDQ loans (a PDQ terminal is the terminal through which credit or debit card transactions are processed). Essentially these products are alternative names for a merchant cash advance: businesses are being lent money on the basis that they will repay it through their card sales. Just like an MCA, credit card processing loans or PDQ loans give businesses the chance to enjoy flexible repayments based on their weekly or monthly takings, rather than having to pay back a set instalment amount.

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Merchant loans

A merchant loan is simply another name for a merchant cash advance. The term “merchant” simply refers to someone (either a sole trader or business) that sells goods or services. Merchants can trade in real life (for example, retailers are merchants) and/or trade online. There are literally thousands of online merchants! To be eligible for a merchant loan, a business, whether operating in real life or online, must have customers who pay for their goods using a credit or debit card. Businesses do not have to have shopfront premises or a similar real life outlet in order to be eligible for a merchant cash loan.

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Merchant cash advance lenders
Merchant cash advance lenders

Merchant cash advance lenders offer a method of financing that’s suitable for a large assortment of different businesses. Because the terms are so flexible and the barriers to accessing a MCA are typically lower than those encountered when accessing more traditional forms of finance, MCA lenders offer a valuable service to businesses who may find obtaining funding from other sources a challenge. Particularly if your business has few assets, has only been operating a year or two or has a limited credit history, working with a merchant cash advance lender could give you the money you need to enable your business to grow.

The Capify merchant cash advance

A merchant cash advance enables businesses to borrow the money they need, then repay it from the credit and debit card payments their customers make. A pre-agreed percentage of each payment is deducted and returned to the MCA lender as the payment is made. This ensures that repayments are proportionate to income.

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Merchant cash advance direct lenders vs brokers: Which is best?

The honest answer to this question is that both direct lenders and brokers have pros and cons. On the plus side, using a direct lender often enables you to take advantage of exclusive discounts and deals, as well as enabling you to thoroughly research your lender before deciding to use their services. That said, brokers may give you access to a number of different lenders, one of whom may offer you a deal that’s more suited to your needs. No matter which option you go for, it’s important to be clear what your borrowing priorities are, to ensure you end up with a deal that’s right for you.

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Choosing the best merchant cash advance lender

Beyond being confident that the lender you’ve chosen is reputable (customer reviews are a good way to check this), ultimately your choice of lender will depend on your personal circumstances and what is most important to you. For example, some borrowers are most concerned about the time they will be able to spread repayments over; others will be interested in how much they can borrow. Other criteria which matter include: how flexible the loan can be; how much it will cost to borrow the money; and how easy it will be to service the repayment amounts.

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Merchant cash advance company reviews

When it comes to finding an MCA lender, reviews are a vital tool. Unlike traditional lending institutions, MCA lenders aren’t regulated by the FCA, as a MCA isn’t technically a loan. For this reason it’s essential to do some research before opting for an MCA lender, to assure yourself that they are well-established and reputable. Review sites such as TrustPilot, Yelp or Google can all provide the information you need to see if your proposed lender is a suitable choice. Taking some time to read around and see what other customers are saying can give you the insight you need to decide on a lender that’s right for you and your business.

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Applying for a merchant cash advance
Applying for a merchant cash advance

When it comes to applying for a merchant cash advance, the process is normally pretty straight-forward and fast. Once an “in principle” decision is given, it’s just a case of submitting supporting documentation and returning the relevant paperwork; then the money can be transferred to your account. To speed up an application, make sure that you have all the supporting documentation you need ready in advance: this not only helps you decide how much you need to borrow and how much you need to repay, it limits delays further along in the application process.

Merchant cash advance requirements for eligibility

Obviously lenders need to assure themselves that the business they are lending to is likely to be able to make the necessary repayments without being plunged into unmanageable financial hardship. This involves collecting information in three key areas:

(a) Information regarding how much is needed and how it is to be used: obviously a business that can clearly show how their borrowing is going to enhance their bottom line is more likely to be accepted.

(b) How the business is run: this includes access to information such as a business plan, the history of the business to date and the number of customers, as well as information on the value and volume of card sales.

(c) Income and expenditure: if possible, audited accounts should be submitted, as well as bank statements and/or profit & loss sheets.

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Merchant cash advance costs and rates

Inevitably, borrowers need to pay for the money which they borrow. Different MCA providers have different fee structures and amounts: in some cases you might pay a small commission on each card transaction, in other cases you might pay an arrangement fee, commission to a broker or a fee for processing. In addition to fees paid upfront, before you take finance out, there might also be fees associated with servicing the debt afterwards. For example, if you fall behind with your repayments, or sales slump so that you are unable to pay the minimum amount required each week, you may end up facing additional financial penalties. It’s important to check with your lender what costs are involved (or potentially involved) before committing to an MCA product.

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Topping up and refinancing a merchant cash advance

As the saying goes, “A business that remains static is already on the way down!”. Business cash requirements can change swiftly: the borrowing which was appropriate a few months ago may not be most suitable for the current state of the business. Whether there has been a sudden improvement in sales, an unexpected slump or an opportunity to diversify, it’s often the case that additional finance is required. Once 60% or more of the MCA has been repaid, Capify allows its customers to take out additional funding. This enables businesses to keep the momentum going if they have begun to see an upturn in profits, or to address any further barriers which are preventing a company reaching its full potential. Many businesses use MCA borrowing repeatedly, finding it a convenient, flexible solution to their borrowing requirements.When it comes to applying for a merchant cash advance, the process is normally pretty straight-forward and fast. Once an “in principle” decision is given, it’s just a case of submitting supporting documentation and returning the relevant paperwork; then the money can be transferred to your account. To speed up an application, make sure that you have all the supporting documentation you need ready in advance: this not only helps you decide how much you need to borrow and how much you need to repay, it limits delays further along in the application process.

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