Tax & admin · 19 November 2019

Can your business benefit from a merchant cash advance?

Merchant cash advance can help your business grow

A well-managed cash flow is the missing puzzle piece that hopeful business owners often fail to find. According to statistics, a massive 82% of small businesses fail due to cash flow problems, with the majority simply unable to operate due to being unable to support the day-to-day running of the business.

When struggling with cash, many business owners turn to their bank with alternative funding options, primarily being arranged risky overdrafts and corporate credit cards.

But with increasing fees and unattractive lending options, more and more are turning to alternative means of business finance, including Merchant Cash Advances.

What are merchant cash advances?

small business banking
MCAs could be a lifesaver if you’re drowning in business expenses.

Originally, a merchant cash advance was structured as an advance payment to a business in exchange for an agreed percentage of future sales through credit or debit cards.

Still more suited to business owners who take a reasonable proportion of their income through credit or debit cards, a merchant or business cash advance is considered a short term, unsecured business loan based on future sales.

In agreeing to a merchant or business cash advance, you effectively sell a proportion of your future sales in order to receive a large cash sum to overcome difficulties with cashflow.

Why are they becoming more popular?

Unlike conventional business loans with set repayment terms, many business owners prefer Merchant Cash Advances because repayments are made daily as a percentage of the company sales.

This means that if a business has achieved low income during quieter sales periods, then a lower repayment is made.

Merchant Cash Advances have become increasingly popular as more and more business owners have realised core benefits such as fast receipt of the loan payment once an initial percentage has been agreed, together with all repayments handled directly by the lender.

How can your business benefit?

MCA
Could adopting an MCA into your business plan help aid your cash flow?

In comparison to securing a business loan via a bank, securing a merchant or business cash advance is a much more seamless process, with a quick turnaround and flexible terms to suit the business in hand.

In addition, MCA’S usually come with no interest or APR, no fixed term and no hidden charges, enabling businesses to use this type of funding alongside other loan or finance options should they need a quick influx of cash.

Have you explored all your options?

This could bridge the gap between small businesses and their struggle to get their feet off the ground. However, it is important to explore all other viable options that could alternatively suit your business. Often MCAs come with anywhere from 10% to 25% interest rates and regardless of how successful your business does you will continually have to pay this back.

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ABOUT THE EXPERT

Michael Foote is the Founder and Managing Director of cost-comparison site, Quote Goat, which compares the costs of both personal and business financial products including Merchant or Business Cash Advances.

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