Merchant Cash Advance

---

Merchant Cash Advance (MCA) is a flexible form of business financing that allows companies to borrow money based on their future credit or debit card sales. This type of finance is commonly used in the UK by businesses that have a steady flow of card transactions, such as retailers, restaurants, and hospitality businesses. Unlike traditional loans, MCAs do not have fixed monthly repayments or interest rates. Instead, repayment is automatically deducted as a percentage of daily card sales, making this a convenient option for businesses with fluctuating income.

How Merchant Cash Advance Works

A merchant cash advance provides businesses with a lump sum of cash upfront, which is then repaid through a percentage of daily or weekly card sales. The amount a business can borrow is typically determined by its average monthly card turnover, and repayments are tied directly to sales. This means that during slower periods, the business repays less, while during busier times, repayments increase. The lender typically agrees with the business on a "factor rate," which is a multiplier used to calculate the total repayment amount.

For example, if a business receives an advance of £20,000 with a factor rate of 1.2, the total repayment would be £24,000. If the business agrees to repay 10% of daily card sales, those repayments will continue until the total amount is repaid. This flexible structure is especially beneficial for businesses with seasonal or irregular cash flows, as they won’t face the pressure of fixed monthly payments when sales are lower.

Benefits of Merchant Cash Advance

One of the key advantages of a merchant cash advance is the speed and ease of access to funds. Many MCA providers can approve applications and release funds within a few days, making it an attractive option for businesses that need quick access to working capital. Additionally, because repayments are tied to sales, businesses don’t have to worry about missing payments during slow periods. This flexibility makes MCAs particularly appealing to small businesses with unpredictable revenue streams or those in industries with seasonal peaks and troughs.

Another benefit is that MCAs don’t usually require a personal guarantee or collateral, unlike many traditional loans. The focus is primarily on the business’s card sales history, making it accessible to companies that might not qualify for other forms of financing due to limited assets or poor credit scores.