Compare 'Merchant Cash Advances' in just a few clicks

No, a merchant cash advance isn’t technically a loan; however, like a loan, it is a way for your business to access funding.

Cash advances don’t have a set monthly repayment amount; instead, the payments are taken as a percentage of daily card transactions. There is also no fixed term, although some MCAs need to be repaid within 12 months.

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.

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.

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.

The payments for an MCA are automatically taken when you take a card payment, so you shouldn’t need to worry about not making a payment.

However, some lenders will stipulate that you make a minimum monthly payment of around 3% of the total amount owed. So, if you’ve borrowed £50,000, you will need to repay at least £1,500 each month.

If you fail to repay your advance, your credit score will be damaged, and the lender could ultimately sue you to recover the money you owe.

The main cost of an MCA is a fixed fee that is charged as a percentage of the amount you borrow, usually between 10 and 20%.

So if you borrow £50,000 and the fee is 15%, you will need to repay the total of £62,500. You’ll then pay back a percentage of your card transaction, typically 20%. For example, if you take £500 on a day from card transactions, £100 will automatically go to the lender.

The fixed fee is sometimes known as a factor rate and is expressed as a decimal. For example, a factor rate of 1.20 would mean an advance of £50,000 would incur a fee of £10,000.

The amount you can borrow with a merchant cash advance is based on your business’s average monthly credit card sales.

Lenders usually offer up to 150% of your monthly taking. For example, if your average card sales are £40,000, you could borrow up to £60,000.

Most lenders set an upper limit for how much they’re willing to lend, such as £500,000.

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.

The main reason you might not qualify for a merchant cash advance is that your business doesn’t take enough in card transactions.

If you’re below the card transaction threshold, look into ways to boost your takings by debit or credit card. If you’re a retail or hospitality business, you could become ‘cashless’ and only accept card payments, but only do this if it won’t have a detrimental effect on your sales.

If your business doesn’t receive payment by card, for example, if you use bank transfers or an invoice system, an alternative type of loan might be necessary.

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

The repayments will be taken automatically at source from your merchant account; therefore, you will not need to make any manual repayments.

Unlike bank loans, cash advances have no fixed term, as the loan is directly related to the number of card terminal sales made each month.

Cash advances are variable, as the repayments can vary month to month depending on how much you take in card sales. The advance essentially lasts for as long as it takes you to repay what you’ve borrowed. Typically, each agreement will run for around 12 months.