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Small and medium-sized businesses may need to attract new customers, purchase equipment and invest in inventory to keep going forward. Still, seasonal fluctuations and unforeseen costs affect the business growth.
Traditional business loans are not always a viable option. Maybe your business has lower credit and is heavily reliant on card sales. In such scenarios, an alternative finance solution is a merchant cash advance.
According to a report, the merchant cash advance market is projected to grow by 6.4%, reaching $26.87 billion by 2030. The rapid expansion of small and large businesses fuels the projected growth. Thebusinessfunds understands this and is ready to help businesses to ensure the best financial help.
With expertise and knowledge of the market and businesses’ requirements, we can help you access multiple cash advance providers offering the best factor rates, without requiring you to do any research.
A merchant cash advance is typically a revenue-based funding in which a lump-sum cash advance is provided to businesses based on their monthly card sales. It is also known as a business cash advance.
Merchant loans are not business loans. They do not charge interest rates. They would rather charge you a fixed rate and a flat fee. The upfront payment is repaid as a set percentage of future daily sales.
| How much can you borrow? | £5,000 - £500,000 |
| Who are business cash advances for? |
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| What are the uses of MCAs? |
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These cash advances provide instant funding before payments from future receivables roll in. Thebusinessfunds has a large network of the best merchant cash advance companies in the UK who would finance your business based on the sales volume. We ensure our merchant cash advance lenders maintain transparency so you can grow your business.
A merchant cash company will decide on the lump-sum payment after reviewing a business's past card sales, trading history, and cash flows. The cost of a business cash advance depends on two factors:
Here is an example of a London-based café:
| A lump sum payment | £20,000 |
| Factor rate | 1.2 |
| Total cost of the advance | £24,000 (£20,000 x 1.2) |
| A split percentage | 10% of daily card sales |
When you have £10,000 in card sales, you'll pay £1,000 to your provider and keep £9,000. If sales fall to £5,000, you'll pay only £500, leaving £4,500 for you. Want to know more about how merchant cash advances work? Click here.
Business cash advance loans are useful for urgent expenses. It may range from growth opportunities to equipment purchase. Instant access to funds is the primary feature that makes them the first choice for businesses with card sales.
Follow these steps to qualify for merchant cash loans:
Evaluate your funding needs
Conduct a thorough evaluation of your business's money requirements and the purpose of utilising it, which is expected to be provided in the application form.
Check eligibility
All businesses, regardless of their size, must have been operating for at least six months to qualify for a cash advance. Additionally, a strong and consistent credit sales are also important. Only a soft credit check is run, so your credit score does not plummet.
Choose a provider
Once you have recognised your business needs, the next task is to choose a provider.
Gather documents
The documents to be submitted are debit or credit card transaction records for the previous 3 to 6 months, bank statements, and business registrations.
Submit your application
Fill out the form, and ensure that you provide all information. You need to submit documents along with the application form.
Review the contract
Read the contract to understand which portion of sales you need to pay to the provider. You may get an idea of how long it will take to settle the whole payment.
Receive funds
Once you settle with the terms and conditions, you may get the facility of same-day merchant cash advance or within couple of days. Repayments are routinely deducted from your regular card transactions at the point of sale.
With a few more options available in the UK business loan market, you may get confused about whether to choose business cash advances or a standard unsecured loan option. Go through the comparison below and decide accordingly.
| Factors | Merchant cash advance | Unsecured business loans |
|---|---|---|
| Structure | A lump sum of money offered against future card sales | A fixed sum of money is lent |
| Repayment | Daily percentage of card sales | Fixed monthly instalments |
| Cost | A factor rate is charged | Interest rates are charged. |
| Eligibility | Based on sales volume | Based on a credit score, and net profitability |
| Speed | Within 24-48 hours | Take a couple of days |
| Flexibility | Payments align with the sales amount | Payments remain fixed even if your business has little cash |
| Personal guarantee | Not required | Often |
| Usage restriction | No | Loans are used only for a specified reason |
| Credit score impact | No | Yes |
These are not standard loans. Your credit history and business plan are not considered when determining the loan amount. Yet, some factors serve as the basis for the lending criteria.
Since a cash advance is subject to debit and credit card sales, a lender would ensure that you have a steady stream of card sales. They will review past card sales over the past six months. Low sales volume and infrequent sales will make it challenging to qualify for a large amount.
Your business must have been operating for a minimum of six months. The good thing is that the operating history length is shorter than that of traditional unsecured business loans.
Card sales over the past six months will be reviewed. Your business must demonstrate growing sales trends. Highly fluctuating sales will reduce the advance amount.
MCA providers do not emphasise credit scores, but they certainly take existing debts into account. You might be restricted to a larger amount due to existing debts.
When using a cash advance for small businesses, you may find it hard to choose between a broker and an alternative lender. The best option completely depends on individual circumstances.
| Aspects | Brokers | Alternative lenders |
|---|---|---|
| Access to options | They will connect you with multiple MCA providers to help you choose the best one. | Options are limited because you apply directly to a lender. |
| Negotiation | Brokers can negotiate for better factor rates on your behalf. | Terms remain fixed or depend on the lender. |
| Support | They provide guidance and save you time and energy while processing your application on your behalf. | Time-consuming to find a suitable lender due to extensive research. |
| Transparency | 100% transparency is maintained. | There may be hidden costs. |
Here are the advantages of a small business cash advance:
They are processed fast
Unlike traditional unsecured business loans, business cash advances are processed fast. You will most likely receive funds within 24-48 hours. The speedy process is what makes them suitable for funding unexpected expenses.
No collateral needed
What makes MCAs more appealing to entrepreneurs is that they do not require collateral. It means you are personally responsible to settle the debt if your business fails. However, borrowing above £100,000 may require a personal guarantee.
Flexible process
They are flexible with repayments. The payment percentage will remain unchanged whether sales go up or down. When no transactions are made, you will pay nothing. No penalty will be charged.
No impact on your credit score
MCA providers do soft credit checks, making them the best choice for businesses with low credit scores. However, it is worth noting that a cash advance cannot help build credit, despite on-time payments.
There are some reasons why this funding option might not always be the perfect fit for you:
It depends on the MCA provider what factor rate they will charge. The higher the multiplier, the higher the total cost will be. Your overall sales trends and sales volume play a paramount role in deciding on a factor rate.
Daily automatic withdrawals can affect the cash flow. You might find it difficult to pay for operational overheads. If you have other business loans to pay off, cash flow problems might become more serious.
Merchant cash advances are particularly suited for short-term cash needs. For long-term commitments, consider using long-term business loans. They provide more considerable flexibility.
MCAs provide short-term cash flow solutions. Depending on the factor rate, the total cost could be slightly higher. You are likely to take longer than expected to settle the full amount. Consider other loans if cash advances for small businesses do not fit your needs.
We assume the position of negotiating for better terms and rates with merchant cash providers. This allows our clients to access lower-cost deals than those who contact lenders directly. Here is why we should be the first choice for you as a broker:
For further assistance regarding loan proposals, you can seek the guidance of our loan specialists, who can help you complete the application.
