Advice on Merchant Cash Advances

May 14, 2019

This is a featured article

One form of alternative finance which has been growing dramatically in popularity is Merchant Cash Advances. These are proving to often be a better route to take than more traditional business loans, as it allows businesses to raise finance based on their credit card turnover.

How they work is, you are typically given the equivalent of your monthly average turnover (inclusive of a small fee) with repayments being made through your card receipts until you clear the balance. Although being a hugely attractive prospect for many, research is vital being it is not suitable for every business. We have provided a few tips for taking out and using a Merchant Cash Advance.

Make sure it’s right for you

As previously stated, a Merchant Cash Advance (MCA) may not be the best solution for every business. The ideal candidates are SME’s which receive the majority of their business through credit card transactions, such as service-based businesses like restaurants, cafes and shops. One necessity to qualify for an MCA is valid incoming credit card sales, as this is essentially a purchase of your business’s future sales.

Read the small print

As the industry which MCA’s and alternative finance find themselves in is largely unregulated still, there are no limits on interest rates and repayment options. To avoid finding yourself stuck in a worse financial position than when you were originally seeking a loan, make sure to read the small print on your MCA to ensure it will work for you and your business. If you have a feeling that something is not right, shop around.

Pin down your goals

Pin down in the early stages how you plan on spending the money received through an MCA so that you do not end up spending the money frivolously resulting in specific goals not being met. Whether you are expanding your business or working on a specific project, decide how much it will cost you. Whoever provides you with an MCA will inform you how much you qualify for, that said, there is no harm in them knowing how much you are seeking initially.

Decide your repayment period

Repayment periods depend on the business as this could be one month, or six. If an MCA is being sought to cover a one-off expense, such as new equipment, pick a shorter window and get it paid off as soon as you can. If the money is being used to cover a more long-term spend such as a renovation, a longer repayment period should be chosen.

Avoid delinquencies & negative balances

As with all loan companies, they are lending you the money on the basis they will get the money back. If you have delinquencies and/or negative balances, this is likely to send a provider running. If there is a history of falling behind on payments or having substantial insufficient funds then your funding will likely be declined. You do not want to be seen as not being able to meet your daily financial obligations. Make sure all your bills are up to date and paid on time.

Collect your paperwork

An MCA does not require the same level of paperwork as a traditional bank loan does, however, you will need to provide your credit card revenues. This is to determine how much a provider would be willing to loan to you. A provider typically requires a few months worth of bank statements and receipts, running costs and any other outgoings.

When businesses require extra cash in a short amount of time, taking out an MCA can be the perfect option. When needing to keep your cash flow in order to meet the business objectives, an MCA could be exactly what is needed. If this is the right alternative finance option for you, then keep the above tips in mind to ensure you get the best out of this product!


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