Obtaining the necessary cash advance solution for funding their business operations is extremely challenging for small business owners in the UK. Because of the lack of collateral, the high-interest rates for business loans, and the lengthy documentation required, entrepreneurs and startup owners are forced to consider other financing options.
Among the alternative lending options for small businesses in the United Kingdom is MCA (Merchant Cash Advance). Merchant cash advances offer different advantages over traditional business loans, such as higher approval chances, flexible repayment terms, and quick access to capital. There are, however, few people who are aware of MCAs. The merchant cash advance is a type of unsecured business loan where a business can get an instant cash advance to support its cash flow over the short term. No APR applies, nor are there any hidden fees. Instead, a fixed percentage of future credit card sales made through the card terminal is repaid as a fixed percentage of future sales. As repayments are proportional to sales, they are one of the most flexible forms of business financing. Therefore, if debit and credit card payments go down, your repayments will also decrease, allowing you to better manage your cash flow.
In this guide, we explain everything you need to know about Merchant Cash Advances. What an MCA is, how it works, and what benefits it provides.
How does merchant cash advance work?
Your business receives a lump sum of capital from a merchant cash advance company. It’s important to know that an MCA is different from a loan. This provider offers to purchase your future sales, and you will use the sales to repay the funds – plus fees.
It is possible to structure merchant cash advance repayments in two ways:
Percentage of card machine services you are providing
Until the advance is repaid in full, a merchant cash advance provider automatically deducts a percentage of your debit and credit card sales every day (or every week).
Business loans such as merchant cash advances don’t typically have repayment terms. The repayment period is determined by your sales and can range between three and 18 months; the higher your sales, the faster you’ll be able to repay your advance.
Your bank account will be debited in a fixed amount
The companies that offer merchant cash advances can also withdraw repayment funds directly from your merchant bank account. A fixed repayment amount is determined based on an estimate of your monthly revenue, and it is made every day or every week from your account regardless of how much you earn in sales.
Based on the amount borrowed, this type of MCA repayment structure allows you to calculate exactly how long it will take your business to pay back the advance and can be more suitable for businesses that do not rely heavily on debit and credit card sales.
Benefits of merchant cash advance
Compared to traditional loans, merchant cash advances are beneficial in many ways. Some of the top advantages of obtaining an MCA are listed below.
A higher chance of approval
There are plenty of eligibility requirements for traditional business loans, such as high credit scores, collateral, and profitability. On the other hand, an MCA does not impose any strict eligibility requirements.
For the lender, all that matters are the volumes of your credit/debit card sales over the past few months, the number of years your business has been in operation, and your current debt level. The chances of receiving a merchant cash advance are therefore higher for small business owners who apply for one.
No Hidden Fees
Because a merchant cash advance solution is technically not a loan, there are no hidden fees or interest. Despite this, you will probably be charged a high APR (Annual Percentage Rate). Check merchant cash advance APR rates before choosing an MCA provider.
Quick Funding
Traditionally, lenders assess credit scores and collateral value before sanctioning a business loan. The loan application process takes weeks or months, and the borrower doesn’t receive the loan amount for weeks or months.
A merchant cash advance does not involve any credit risks, and the lender looks only at your income stream to determine your reliability and risk level. You receive your funding within a couple of working days after completing the loan application process within 24 to 48 hours.
No Credit Checks
Borrowers who want traditional bank loans need high credit scores on their personal and business credit reports. Even businesses with poor credit scores can qualify for a merchant cash advance because the lender doesn’t evaluate your credit score.
No Collateral
Merchant cash advances differ from traditional secured business loans, in which collateral is required. In other words, it is an excellent choice for businesses that don’t have assets.
Use of funds is not restricted
As long as you use the funds for business development, you can use them however you like. Because there are no limits, you have a greater degree of flexibility.
What are the process and requirements for applying for a merchant cash advance?
Applicants for merchant cash advance loans can apply online in the UK. You just need to find a website broker who acts as a connecting bridge between merchant cash lenders and vendors and fill up their forms. You can also take advantage of merchant cash lenders’ user-friendly digital platforms to apply for cash loans, which include the following steps:
- To apply, click the Apply Now button on the website or digital platform.
- Register and fill out the relevant fields.
- Digitally upload the required documents.
- Click Submit
To provide Vendors with a free, no-obligation quote, websites or other digital platforms just need a few basic details. The vendor can qualify for a merchant cash advance of up to £300k if they receive payments through a (PDQ) card terminal machine. Their monthly average card sales and overall volume determine how much they can borrow.
Merchant cash advances have helped thousands of businesses across the UK get the cash they need to buy more stock, invest in new equipment, or simply to boost cash flow. Upon approval, you will see the money in your bank account.
You can meet the lender’s minimum card payment volume if your business accepts card payment services from customers.
Essential requirements
- Payments by credit card must meet a minimum volume
- Profitability sufficient to repay the loan
- Bank statements, or other financial documentation
There is no need for hard copies of the documentation during the documentation process. The requested documents need only be uploaded as digital copies.
- KYC- Proof of identity, age, address, and PAN card through any valid document of the promoter and company
- Existence- Proof of business registration
- Financials- 12-month bank statement for current account, the 3-month card settlement statement
- Tax returns- In the case of GST or VAT, relevant tax returns.
Is merchant cash advance right for your business?
Founders of a new small business are always looking for ways to prop themselves up in the short term so that they can achieve their long-term goals. It is for this reason that merchant cash advances (MCAs) are often an option: they give business access to cash quickly without requiring it to go through the rigorous application and approval processes of a small business loan.
There is no doubt that merchant cash advances are the best funding solution available to small businesses in the UK. The UK government has praised this alternative funding option, which has already benefited thousands of small businesses. Your busy times and quiet times can both be accommodated by this plan. As an example, you only pay back the agreed percentage of your card sales if you have a slow month.
The merchant cash advance is best suited for small businesses that need some extra money to improve their competitiveness and efficiency. Bank loans are not always available to small businesses to cover all their needs.
There are times when an MCA is not appropriate for companies that are forced to shut down completely because of a major disaster. Getting assistance from a traditional bank loan or grant is better than from an MCA because you won’t have to continue to perform daily transactions to repay them.
