How do Merchant Cash Advances work?Published on 5th July 2017 - Last update on 5th November 2018
Many businesses all across the UK will utilise some sort of finance product during the course of their life and for any number of reasons. Whether it be for growth, revenue support or even raising capital. When you’re pressed for time and need access to essential funds right away there is one business finance product that stands prominently above the rest. That product is Merchant Cash Advance (MCA).
How do Merchant Cash Advances work?
Applicable to a vast array of British sectors, including retail, catering, beauty and healthcare, Merchant Cash Advance has steadily grown in popularity and for good reason. Unsecured and unique in the way that it operates, this product is designed to flow comfortably around your business credit and debit card sales. This allows for a Merchant Cash Advance solution to become very flexible, determining everything from whether or not you can afford the product to the potential lump sum acquired and how the product is eventually repaid. Yet although it is an attractive finance solution for many businesses, it’s vital that you fully grasp how Merchant Cash Advance works.
When applying for this type of finance there’s no need to present lenders with your credit score or business history. Because Merchant Cash Advance focuses and operates in conjunction with credit and debit card transactions, your monthly sales reports are all that matter. In addition, as long your business is able to support card payments, applying for this type of finance is usually very fast, with funds often being transferred in as little as 48 hours. In essence, it’s cash delivered straight to your business precisely when you need it most.
Your sales reports play an intrinsic part in this means of business finance. Business lenders will ask to review your sales reports for 3 or more consecutive months. This will allow them to form an in-depth understanding of your card-based trading patterns, customer spending behaviour and to decide whether you can afford the product. Should a potential lender agree to offer your business an advance, the size of the potential lump sum will be determined using an average. What this means is that if your business earns roughly £5,000 in card sales each month, the size of the lump sum will be in the same region.
How do you repay a Merchant Cash Advance?
The method in which a Merchant Cash Advance is repaid is what makes this product so different from other business finance products. Rather than making fixed monthly repayments each month for an agreed term, Merchant Cash Advances take on a vastly more flexible approach with Flexible Monthly Repayments. This means that the lender will automatically take an agreed percentage from each card-based transaction your customers make. For example, if a lender was to offer a rate of 18%, it can be expressed as 18p from every £1 spent on your business’ goods and services. Note that this is merely an example and figures can vary between lenders. Because of how Flexible Monthly Repayment schemes operate, using a percentage, the amount used to repay to the lender each month can vary. To elaborate further, if you experience weaker sales in a particular month then the amount repaid goes down. On the other hand, should your card sales increase the amount goes up. As such, it could be said that your card customers are paying the product off for you.
How do I find the right Merchant Cash Advance solution for my business?
One of the biggest frustrations in business is sourcing the most appropriate business finance solution that truly offers you the greatest possible value. This is also the case when seeking a Merchant Cash Advance – how can you tell which is the right match for your business’ needs?
Complex, stressful and time-consuming, you can feel alone in your endeavour. However, it needn’t be this way. With the services and expertise of the business finance experts at Rangewell we can help you source the most appropriate and affordable solution for your business, accompanied by highly competitive rates to match. Whether it’s for new growth products, support during a slow sales period or an unexpected emergency, Rangewell is offering you a helping hand and leading the way forward.
Our values are simple – We’re on your side.
At Rangewell, our services are clear and transparent. We support a wide range of SME businesses of every shape and size, for finding every type of finance. Follow us on Twitter and LinkedIn for business tips and tricks, and feel free to call us on 0203 637 2340 if you’d like to chat about what we can do for you.
Share this article
Discover your range of finance. Every type of finance for every type of business.
Our goal is very simple - to help businesses find the right type of finance as quickly, transparently and painlessly as possible.Find Funding