Tips on using a Merchant Cash Advance

Not everybody wants to go down the route of a traditional business loan. Banks can sometimes be reluctant to lend to new and small businesses, leaving many with no room to grow. If this sounds familiar, you might be interested in learning a little more about alternative business finance, such as Merchant Cash Advances (MCA).

Often also called Business Cash Advances, MCA’s allow businesses to raise finance based on their credit card turnover. With this in mind, it’s perfect for businesses such as shops, cafes, restaurants and salons as they make their main business revenue through credit card transactions.

There’s no pressure to pay back a set amount of money over set dates in time with an MCA. You instead make your repayments at any one time proportional to your credit card turnover. If a business goes through a lean period, then less money is paid back during that time. In the height of a business’s peak season, more of the money is paid back.

It’s a great option for businesses looking for quick and simple finance that won’t appear on your credit report. However, it’s important to know your stuff when it comes to successfully using an MCA. Here’s some tips on getting it right…

Make sure it’s a suitable option for you

If you run a taxi service, a plumbing business or a marketing agency, an MCA won’t be your most suitable option as chances are you mainly deal with cash and bank transfers when it comes to payments. MCA’s aren’t a one-size-fits-all finance solution. If you make the majority of your business through credit card receipts, then you tick the most important box as this is integral to the way this form of finance works.

Set specific goals

Whether you’re taking out an MCA to buy new equipment to expand your business, or if you’re working on a specific business project, make sure you set a budget and pin down your plans in the early stages. It’s really important to stick to these plans and goals, as you might find yourself spending money frivolously and getting nowhere.

Organise your paperwork

If you’re running a business, you’re probably used to all of the admin. Although an MCA doesn’t require almost as much paperwork as a traditional bank loan, you will need to provide your credit card revenues so that the provider can determine how much they can afford to loan you. Be prepared with a few months worth of running costs, bank statements, receipts and any other outgoings.

Keep your numbers in check

You might not be dealing with a traditional bank, but delinquencies and negative balances will still send a provider running! They are lending you the money on the basis that they will get it back, so stay on top of your finances to avoid being declined. Don’t let the high approval rates lull you into a false sense of security.

Check the small print

One downside to an MCA is that the market is still largely unregulated. There’s no limit on interest rates and repayment options so be careful and make sure to read and understand all the terms and conditions. You’re sure to find something that suits your needs, but shop around and make a sensible decision.

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