As banks continue to shift the goalposts with their already stringent lending criteria, more businesses than ever before are setting their sights on the alternative options available and in doing so, discovering a broad range of more flexible and affordable funding solutions than anything available on the High Street.
An increasingly popular option among the SME community is the merchant cash advance. Offered as an alternative to conventional bank loans and overdrafts, MCAs are issued against the value of future credit and debit card payments.
The facility is issued as an unsecured loan, but projected card transaction values are used as a form of collateral. What this means is that the balance of the facility is repaid gradually, as a fixed subtraction (usually around 10%) of subsequent card transactions processed.
What Can MCAs Be Used For?
True to its name, a merchant cash advance is every bit as flexible and versatile as a cash injection. When you take out an MCA, you are afforded a specialist type of short-term business loan that can be used for any legal purpose whatsoever.
Among UK SMEs, some of the most popular uses for MCAs include funding business expansion, covering marketing and advertising costs, purchasing equipment and inventory, relocating to new premises, expanding into new markets, and many more besides.
MCAs can also be used to consolidate debts, cover unexpected tax payments and even cover staffing costs.
What Makes an MCA Better than an Overdraft or Loan?
A competitive MCA organised with the support of an experienced broker can be advantageous over a loan or overdraft in many ways.
For example, repayments on an MCA are tied only to the borrower’s actual credit and debit card takings. An agreed deduction is set when the facility is arranged – typically 10% to 20%. This amount is then taken from the company’s subsequent monthly card transactions, however modest or substantial they may be.
With a merchant cash advance, you pay more when business is good and less (or nothing at all) during quieter times.
In addition, the fee payable on the facility are added to the total balance of the loan at the time it is arranged. This means that the business always knows exactly how much they can expect to pay, as opposed to with more conventional credit facilities where interest and borrowing costs continue to increase over time.
It is also comparatively easy to qualify for a merchant cash advance – even if you have an imperfect financial track record, or poor credit. You simply need to collect credit card revenues totalling at least £2,000 to £3,000 per month, in order to meet the requirements of most lenders.
An MCA can also carry much lower borrowing cost than a comparable overdraft or loan.
How Long Does it Take to Organise an MCA?
Depending on the lender you approach, it is often possible to arrange and access an MCA in as little as 48 hours. Eligibility is determined almost entirely on the basis of card terminal transactions, making it a comparatively simple facility to organise.
Before approaching a specific lender with a request for an MCA, it is a good idea to consult with an independent broker. Your broker will negotiate on your behalf to ensure you get an unbeatable deal and provide the support you need for a smooth and simple application process. - https://ukcommercialfinance.co.uk/