Should I get a Merchant Cash Advance?

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A merchant cash advance (MCA) may prove suitable for a small to medium-sized business that could potentially be susceptible to unexpected cash-flow problems, due to operating on fine profit margins. These businesses may have attempted to gain funding from the bank, only to be flatly rejected. This is where alternative finance comes into its own and proves to be the perfect route for many – particularly a merchant cash advance.

What is a merchant cash advance?

A merchant cash advance, or business cash advance, is a means of raising finance based on a company’s credit card turnover. Popular thanks to its flexibility, scalability and convenience, merchant cash advances allow businesses to borrow a relatively small amount, which is then repaid through a proportion of credit card receipts. With a merchant cash advance, a business is essentially selling a percentage of their future card terminal payments. For this reason, it’s the perfect finance solution for businesses such as shops, cafes and restaurants where the majority of income comes through a credit card terminal. If the business goes through a quiet period, less money is paid back that month. At the height of their peak season, more of the money is paid back.

Is a merchant cash advance safe?

The process of setting up a merchant cash advance tends to be simple, convenient and fast with the lender needing to know very little before agreeing a loan amount and repayment plan. You’ll often be asked for a guarantee and a credit check will be carried out. From there, providing that the business is in good health, a merchant cash advance is usually obtained within just a few days. The ease of it and high approval rates may leave many asking, ‘is this safe?’ The answer is yes, you’ve got nothing to worry about.

Unlike a traditional bank loan, a merchant cash advance poses zero collateral, so you won’t lose anything physical in the event of being unable to keep up with the payments. This makes the option very low risk. There is also no credit risk as it is technically considered a sales transaction rather than a loan, so it does not appear on your credit report. This means squeaky-clean credit scores which is always helpful for the future. With a merchant cash advance, you’re simply securing crucial funds for your business quickly, safe in the knowledge that it doesn’t pose anywhere near as much risk to your broader finances.

Is a merchant cash advance suitable for my business?

If you are a business that makes significant revenue through card payments via a terminal and you need flexibility with your repayments, then you may be the perfect candidate. To qualify for a merchant cash advance, you must have a minimum of six months’ trading history with your card machine. It’s important also to note that you can only obtain the equivalent of your average monthly card turnover. Also, when applying for your merchant cash advance, you’ll preferably need the last 12 months of merchant statements, (but you can get away with the last 6 months if that’s a problem), proof of your bank account and ID, and a completed application form.

Conclusively, for a huge range of small to medium-sized companies, a merchant cash advance can be an invaluable means of quickly accessing the finance needed to make crucial investments at short notice, and getting their cash-flow back on track. As long as you can pay the money back, it’s a great method of alternative finance to get your business through quieter periods.

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Choice Loans is a long-established finance brokerage based in the UK. We provide access to many traditional forms of finance, specialising in alternative ways of raising finance. Our approach presents companies and individuals with finance options unavailable via mainstream lenders.