Compare Merchant Cash Advances To Help Your Business Grow Purchase Stock Employ Staff Expand Pay Suppliers

A merchant cash advance (MCA), also known as a PDQ cash advance, is a quick and easy alternative to a business loan designed for small businesses that take card payments.

Merchant cash advance loans are unsecured cash advances for business owners based on future credit and debit card sales. Lenders provide a sum of money upfront, which is then repaid using a pre-agreed percentage of card transactions, plus any fees. 

As the repayments are directly linked to your card takings, you’ll only pay back what you’ve borrowed when your business makes sales.

• Suitability: Businesses taking at least £5k per month through an online payment processor or card terminal.
• Purpose: Can be used for any business expense.
• Amount: You will typically be able to borrow up to 2x your monthly card takings.
• Term: This will vary, as you will only repay a fixed percentage of future card takings – no cash will be used towards repayment.
• Cost: No interest or APR. Just a single, fixed, pre-agreed fee.
• Security: Personal guarantees may be required from owners/directors of the business.
• Speed: Applications can be processed within 24 hours of receiving a full proposal. Drawdown times will depend on your card acquirer.

Here’s an example of how an MCA can work:

• A retail business needs to purchase some more stock to meet growing demand.
• The business has averaged £50k per month in card sales over the last 12 months. 
• Typically, lenders can offer up to 150% of your average card sales, meaning this business can borrow up to £75,000.
• The lender agrees to lend £75,000 with a payment percentage of 20% of all card transactions.
• For example, if their card transactions totalled £2,000 in one day, £400 would be paid towards the advance, and the business would keep the remaining £1,600.
• The payments are taken automatically and will continue until the balance (including the fixed fee) is paid in full.

A merchant advance loan can be used for any purpose, provided it benefits your business and is not for personal use. 

Some of the most common reasons for getting a merchant cash advance loan include:

• Unexpected costs
• Stock
• Growth
• Refurbishments
• Equipment purchase
• Additional staff
• Marketing 

Cash advances are usually used as a short-term cash flow solution rather than a long-term funding option.

Most limited and non-limited companies, including partnerships and sole traders, are eligible for a UK merchant cash advance. 

The main requirements typically include:

• At least four months of card trading history
• A minimum of £1,000 in card payments a month, although this may be higher depending on the size of the advance and the lender

To qualify with certain merchant cash advance lenders, you may need to have a business bank account with them.

As MCAs are unsecured, you don’t need to be a homeowner or have a property to secure the advance against.

To apply for a merchant cash advance, you need to:

1. Work out how much you need to borrow
2. Make sure you take enough in card transactions to qualify
3. Check your business credit score and take steps to improve it if necessary
4. Get together all the documents you need to provide as part of the application
5. Find and compare funding options with Aurora Capital today

When you apply with Aurora Capital, we’ll compare our trusted panel of lenders and match you with the finance option that best suits your needs.

This type of loan is ideal for small businesses looking for flexible, short-term funding solutions. It can also be a good option if your company operates seasonally, as the repayments will be lower in months with low turnover and higher in months with high turnover.

The types of businesses that could benefit from MCAs include:

• Retail businesses
• Hospitality, including restaurants, cafes and small hotels
• Trade businesses, including construction companies and electricians, if they take most of their payments through card transactions

Business cash advances could be a quick and flexible option for your business, but you need to be aware of the downsides as well as the upsides.

Pros of cash advances

• Repayments at the source: You won’t have to worry about knowing when your payment will be taken or whether you have enough in the bank. The payment is automatically taken before it reaches your business account.
• Repay as you earn: The more you earn, the more you pay back. A particularly busy period for your business would mean more of the loan being paid back; however, during a quiet period, you pay back less.
• No hidden costs: The fee is set when you agree on the advance and is added to the amount you owe. There is no interest to add, so you always know exactly what you need to repay.
• No asset security needed: Merchant cash advances are unsecured loans, which means you won’t need to provide an asset like a property as security.
• Cash transactions: Your repayments only come from your card transactions, so you will keep any cash payments you receive.
• Access other finance options: It can be difficult to get more than one business loan at once, but if you have a merchant cash advance loan, you can still get another type of finance at the same time.

Cons of cash advances

• High fees: The fees can be expensive and are typically between 10 and 20% of the advance. For example, if you borrow £10,000 with a 20% fee, you repay a total of £12,000. 
• Short-term option: MCAs aren’t a long-term funding solution and are designed for short-term needs. Most merchant cash advances are intended to be repaid within 12 months.
• Can’t encourage cash payments: You may be in breach of your MCA agreement if you attempt to encourage customers to pay with cash rather than a card to reduce the amount you repay per sale.
• Cash flow impact: Consistent deductions from your business’s sales can hurt your cash flow and ability to cover your costs or debts.
• Not suitable for all businesses: If your business deals primarily with cash, invoices, or bank transfers, you likely wouldn’t benefit as much from a PDQ cash advance.

An MCA is a good option for short-term cash flow issues, but if you need a long-term solution or larger-scale funding, there are several alternatives available:

• Business loans: A business loan could allow you to borrow a large amount over a term of several years. You’ll be charged interest, but they can be cheaper than merchant cash advances.  
• Asset finance: This type of loan allows you to buy new assets like equipment or vehicles and spread the cost over time. 
• Revolving credit line: This line of credit remains accessible as and when you need it. You can access credit up to a set limit until the end of the agreement. 
• Invoice finance: This short-term credit solution allows you to release money from your unpaid invoices. 
• Bridging loans: A business bridging loan is a short-term form of borrowing that can help you bridge the gap between a significant outlay and incoming cash.
• Peer-to-peer lending: A peer-to-peer business loan allows businesses to borrow directly from investors through an online platform.

Which alternative suits you will depend on your business and what you need funding for. Speak to one of our team if you need help working out what business finance you need.