Accelerate Business Growth with the Advantages of a Merchant Cash Advance
Cash is king for the contemporary SME, but maintaining healthy cash flow is often the single biggest challenge for small business owners. Repeatedly taking out and repaying loans to fuel growth is an option, but for most businesses is neither practical nor affordable.
This is precisely where the unique benefits and logistics of merchant cash advance loans come into play. They are an increasingly popular option for SMEs looking to improve cash flow management.
What is an MCA?
A merchant cash advance (MCA) is a flexible financing solution for SMEs, providing rapid access to short-term cash injections that can be used to support growth and expansion. Unlike traditional loans, an MCA is a bespoke facility wherein a business trades a portion of its future card sales in return for an immediate cash advance.
The underwriting process involves analysis of your historical credit and debit card sales, rather than credit scores and overall financial performance. This makes it a uniquely accessible form of finance for businesses with a short trading history, along with those with less-than-perfect credit scores.
How Does an MCA Work?
Consider a typical working example:
- A popular local café faces an unexpected surge in coffee bean prices and necessary kitchen equipment upgrades; they need to raise £20,000.
- The owner applies for an MCA and after assessing their regular monthly card sales of £30,000, they’re approved for an advance of £20,000.
- Their provider calculates a factor rate of 1.2 and deducts 10% from their monthly card transactions for repayment.
- From the £20,000, the coffee shop procures the inventory it needs and replaces the broken kitchen equipment.
- The business then pays 10% of its monthly card revenues until the total repayment value of £24,000 (advance of £20,000 x factor rate 1.2) is met.
- In busier months, more is deducted; in slower months, less is taken.
- Over time, these investments result in higher takings and more customers, driving growth without placing excessive financial pressure on the business.
What Are the Benefits for SMEs Pursuing Growth?
An affordable MCA from an established provider has the potential to be advantageous over more conventional commercial loans in a number of ways.
Examples of these include:
Immediate Cash for Urgent Needs
An MCA is a high-speed solution for businesses in need of quick access to funds. Applications can often be processed, approved and funded in as little as one business day: Exponentially faster than almost any comparable loan. This allows SMEs to capitalise on opportunities that require immediate financial outlays, like procuring stock for seasonal sales or investing in the latest technology.
Flexible Repayment Schedule
MCA providers deduct a fixed percentage from daily card transactions, meaning repayments are directly tied to the SME’s revenue. In quieter periods, repayments are lower; during busier times, they increase. This flexibility helps manage cash flow more effectively, allowing businesses to grow without having to worry about fixed repayments.
No Collateral Required
Unlike traditional loans, these are technically unsecured, meaning you don’t need to put up assets as collateral. Instead, future credit and debit card takings are used as a form of unsecured ‘backing’ for the loan. This can be particularly useful for businesses that do not have assets of value in their possession, or those that would prefer not to put their assets on the line as security.
With no late fees or fixed term lengths involved, an MCA offers an uncomplicated finance solution for SMEs. All loans are issued as bespoke agreements, with terms and conditions tailored to meet the unique requirements of the applicant. This can make it a far more agreeable funding solution than a more generic, off-the-shelf commercial loan with fixed borrowing conditions.
Investment in Expansion and Growth
An MCA can be used for any legal purpose whatsoever, affording the borrower complete freedom of choice. Those in pursuit of expansion and growth can make regular investments in employee training, marketing campaigns, inventory purchases, upgrading machinery, opening new locations and more, enabling them to grow their business while optimising cash flow.