Merchant Cash Advance

Merchant cash advances (MCA) have become a go-to financing option for businesses in the UK hospitality, retail, and leisure sectors. Ideal for companies with few assets but a high volume of daily card transactions, an MCA leverages your card payment terminal to provide unsecured lending. With repayments tied directly to your card revenue, the advance adjusts to your business’s performance. Pay more when business is thriving, and less when things slow down, making it an ideal solution for small to medium-sized enterprises (SMEs).

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What is a Merchant Cash Advance?

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A merchant cash advance (MCA) is a flexible funding solution that unlocks future income to provide immediate working capital. It is often referred to as a business cash advance. With an MCA, a lender advances a lump sum, which is repaid from customer card receipts. Repayments are automatically made as a fixed percentage of card transactions, typically on a daily, weekly, or monthly basis.

Unlike traditional loans, MCAs are easier to secure, especially for businesses with limited assets or credit history. Businesses that have been turned down for other funding types can often still qualify for an MCA.

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How Does an MCA Work?

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Any business that accepts payments via a card terminal may be eligible for a merchant cash advance. The lender partners with your card payment provider to assess the volume of your card transactions and calculate how much to lend. Since the loan and repayment plan are tied to your card payments, an MCA adapts to your business’s trading patterns. The percentage of receipts going toward repayment stays the same, but the actual repayment amount fluctuates based on how much your business makes. This flexibility makes MCAs particularly suitable for businesses with seasonal or variable income.

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Repayments are hassle-free and deducted directly by your card terminal provider, eliminating the need to manage cashflow or make scheduled payments manually.

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Is a Merchant Cash Advance a Loan?

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Yes and no.

 

While MCAs technically involve borrowing, they differ from traditional business loans in several key ways:

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1. Unsecured: No collateral or assets are required to secure the advance. The lender assesses eligibility based on your business's card revenue, not your personal or business assets.

2. Adaptive Repayment: Repayments fluctuate based on your card transaction volume. You repay more when business is booming and less during slower periods. However, like most loans, MCAs have a "sunset" date by which they must be fully repaid.

3. No Penalties for Early Repayment: Since repayments are made automatically as a percentage of card receipts, late fees are not an issue. Early repayment does not incur a penalty, but the total repayment amount remains the same regardless of how quickly you pay it off.

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Uses of a Merchant Cash Advance

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MCAs can be used for a wide variety of business needs, including:

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• Purchasing stock

• Expanding or renovating premises

• Funding large orders

• Maintaining regular cashflow

• Paying VAT or tax bills

• Marketing and business development

• Purchasing equipment

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MCAs provide an excellent option for businesses in industries like restaurants, retail, ecommerce, beauty salons, pubs, and garages.

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How Much Does a Merchant Cash Advance Cost?

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The cost of an MCA is determined by several factors, including your industry, credit rating, card transaction volume, and overall turnover. The total cost is expressed as a factor rate, which is a fixed cost per pound borrowed. Factor rates typically range from 1.07 to 1.35, meaning you might pay £1.07 to £1.35 for every £1 borrowed.

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For example, borrowing £1,000 at a factor rate of 1.2 means you would repay £1,200 over time. The factor rate is agreed upon at the start of the loan and remains fixed throughout the repayment period.

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What is a Factor Rate?

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A factor rate is the fee that an MCA provider charges for lending you money. Unlike interest rates, which can fluctuate, factor rates are fixed at the start of the loan. They are a set amount you will repay for every pound borrowed. For example, with a factor rate of 1.35, you will repay £1.35 for every £1 borrowed.

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Key Benefits of Merchant Cash Advances

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1. Flexible and Adaptive: Repayments adjust based on your business’s card payment volume, making it a scalable option that grows with your business.

2. Unsecured: No assets or collateral are needed, making it accessible to businesses with few hard assets or limited credit history.

3. Fast Approval: Some MCA providers can approve and deposit funds within 24 hours of application, making it one of the fastest forms of business financing.

4. Automatic Repayments: Repayments are deducted directly from your card transactions, reducing the need for cashflow management and preventing late fees.

5. No Hidden Fees: The factor rate is fixed upfront, so you know exactly how much you will repay.

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Downsides of Merchant Cash Advances

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1. Higher Costs: MCAs can be more expensive than traditional business loans due to higher factor rates.

2. Card Payment Requirement: Businesses that rely on cash, cheques, or bank transfers will not qualify for an MCA.

3. Loan Size Limitations: Most lenders will offer an MCA of 1-2 times your monthly card turnover. If you need a larger loan, an MCA may not be the best option.

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​Can I Repay an MCA Early?

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Yes, you can repay a merchant cash advance early without penalties. However, since the fee is fixed upfront, there’s no financial benefit to early repayment. If you have surplus cash, you may want to consider investing it in business growth opportunities instead.

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Will an MCA Affect My Credit Score?

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Taking out an MCA generally has no direct impact on your credit score. Lenders focus more on your card payment volume and business performance than personal credit. However, a hard credit check may be conducted if the lender is concerned about your repayment ability, which could impact your score.

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Can I Get an MCA With Bad Credit?

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Yes, businesses with bad credit can still qualify for a merchant cash advance as long as their card payment turnover and business performance meet the lender’s requirements. However, higher risk may lead to higher factor rates and smaller loan sizes.

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Can I Apply Without Bank Statements?

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Lenders will typically request some form of financial documentation, such as bank statements or business accounts, to assess your ability to repay the loan. However, the volume of your card payments will be the primary factor in the lender’s decision.

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Can I Exit a Merchant Cash Advance?

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Yes, you can repay the remaining advance and fee at any time to exit the loan. There are no penalties for early repayment, but the total amount owed will not be reduced by paying off the loan early.

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How Quickly Can I Get an MCA?

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Some lenders can approve an MCA within 24 hours, provided your business meets the required criteria. This makes MCAs one of the fastest ways to secure business funding.

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Interest Rates and Costs

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MCAs don’t have traditional interest rates. Instead, borrowers pay a fixed fee known as a factor rate, which is set when the loan is made. Repayments are tied to your card transactions, so the time it takes to repay the loan can vary based on your sales performance.

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Eligibility Requirements

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To qualify for a merchant cash advance, your business needs:

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• A minimum volume of card payments

• Sufficient profitability to demonstrate loan repayment ability

• Financial documentation, such as bank statements or audited accounts

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Merchant cash advances provide a flexible, scalable option for businesses that rely heavily on card payments. Whether you're looking to grow, improve cashflow, or meet unexpected expenses, an MCA can offer a fast and adaptable funding solution tailored to your business needs.