Merchant cash advance loans

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Libby James
Merchant Services Expert

Libby James is co-founder, director and an expert in all things merchant services. Libby is the go-to specialist for business with more complex requirements or businesses that are struggling to find a provider that will accept them. Libby is regularly cited in trade, national and international media.

What is a Merchant Cash Advance Loan?

The term “merchant cash advance” may appear perplexing to business owners, so before delving into it, let’s break it down.

At its core, a merchant is a business selling goods or services, and merchant services are the tools that allow the merchant to accept card payments. In the case of a merchant cash advance loan, it’s essentially when a merchant borrows funds against the future card payments the business expects to receive. In this article, we’ll provide an in-depth exploration of how business loans tied to credit card processing operate.

In the realm of card payments, complex terminologies often have several names. You might come across phrases like “Merchant Processing Lending,” “PDQ Cash Advance,” and “PDQ Funding.” These are essentially the same thing, which can be a bit confusing, right? For the purpose of this blog post, we’ll stick with the term “merchant cash advance.”

Merchant Cash Advance for Businesses

In simple terms, a MCA is a short-term, unsecured loan. Repayments are deducted directly from the transactions processed by the merchant, either through chip and pin machines or online. These repayments are typically calculated as a percentage of each transaction, often ranging from 5% to 25%, and they go toward repaying the loan.

The repayment period for this loan is typically around twelve months, but it can be extended to several years or reduced to a minimum of three months. Due to the variable nature of repayments (as they are tied to your monthly card payment turnover), the agreed-upon terms can differ. For instance, if you have a particularly busy month with a high volume of card payments, your loan repayment will be higher.

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How Much Can You Borrow with Merchant Lending?

Determining affordability for advance solution loans should always be based on a case-by-case assessment. Each merchant’s eligibility is evaluated based on their card processing history over the past four to six months. This includes not only direct payments to the business but also card payments received through third-party platforms like Airbnb, JUST EAT, Uber, etc. Additionally, merchant cash advance lenders will consider your business expenses and credit history before deciding on the loan amount.

The amount you can borrow from MCA lenders depends on your monthly card turnover. Some advance companies specify a minimum monthly turnover of £2500. Others may allow you to borrow smaller amounts initially and then offer additional advances after a set period. The maximum business cash advance amount from most merchant cash advance providers is £500,000.

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Merchant Cash Advance vs. Bank Loan

There are various types of business finance, and traditional bank loans are where most companies typically begin. The key difference between a bank loan and a merchant cash advance lies in the repayment process.

A conventional business loan from a mainstream bank will have fixed terms and a set repayment schedule, and you are responsible for ensuring that monthly repayments are made on time. In contrast, merchant cash advance agreements involve repayments being automatically deducted from your card payments at the source.

MCA can be advantageous for businesses for several reasons, which we will explore shortly. However, it’s crucial for businesses to understand the repayment process and how, like any unsecured funding, repayments can affect future cash flow.

Planning is essential to ensure you are comfortable with business advance loans. Keep in mind that repayments are collected at the source, so you won’t receive the full amount of your card payments. The time it takes to settle advance loans can vary, and the agreed repayment period should serve as a guide rather than an exact settlement timeframe.

If the variability of repayment amounts and periods does not align with your business’s financial comfort, cash advance company loans may not be a suitable option for you.

Merchant Account Cash Advance – What You Need to Know

Before considering your options for a merchant credit card advance loan, it’s crucial to determine if you are eligible. While underwriting guidelines for MCA can vary depending on the specific companies you apply to, there are some fundamental requirements to keep in mind.

Your business must be structured as a sole trader, partnership, LLP, or limited company with a business bank account. To secure a cash advance based on merchant sales, you should have at least four months of card transaction history, although some lenders may require six months. New businesses seeking merchant cash advance can still apply but must have the required transaction history in place.

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The Merchant Cash Advance Process

Now that we have a grasp of how merchant cash advance works and that eligibility criteria can differ among providers, let’s delve into the application process.

Whether you operate a pub or restaurant or run an e-commerce website exclusively, the application process for a merchant advance loan is quite consistent.

Once you’ve identified the most suitable merchant cash advance provider for your needs, you’ll be asked to provide some essential documents. These typically include:

Identification, such as a driver’s license or passport for business owners.

Proof of address, dated within the last three months.

Proof of your business’s location.

Transaction statements from your payment provider.

Evidence of any income from third-party card payments, such as those from platforms like Etsy, eBay, Deliveroo, etc.

Some applications for merchant banking can utilise Open Banking to access your card payments income. This means you can apply for a merchant cash advance online or over the phone, but you’ll need to grant permission for access to your business bank account.

 

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Merchant Cash Advance Providers

Once the provider or MCA broker has received the documents mentioned above, it’s essential to understand how merchant cash advance providers operate.

The application may be submitted for underwriting and approval, sometimes referred to as a pre-approval merchant cash advance application. At this stage, a soft credit check is typically conducted. If you have any adverse or poor credit history, it’s crucial to disclose this information to the merchant cash advance lender before reaching this point.

Merchant Cash Advance Terms and Conditions

After submitting a complete MCA application, you’ll receive an initial response indicating whether the direct lender or broker-selected merchant cash advance provider will accept your application. The terms, including the amount the provider is willing to lend and the settlement conditions, will then be presented for your agreement.

If you are satisfied with the loan terms, this is the point at which you can accept the terms and proceed with the unsecured cash advance agreement. Merchant cash advance funds are typically deposited into your business account quickly, often within 2-5 working days.

Merchant Cash Advance Info

When applying for merchant cash advance loans, it’s essential to treat them like any other financial commitment. Because merchant cash loans are typically approved swiftly, businesses should not cut corners. Here are some tips to ensure that your credit card advance loan application is processed efficiently:

  • Make sure you have all your paperwork in order before reaching out to merchant cash advance lenders directly or speaking with a broker.
  • Determine how much you’d ideally like to borrow and how you plan to use the funds.
  • Honesty is the best policy – provide all necessary information during the application process.
  • Ensure that you meet the underwriting criteria before applying. For example, it’s pointless to apply to a lender who doesn’t accept offshore directors if you happen to be one.

If you are uncertain or require assistance, seek guidance from an experienced, impartial broker.



Merchant Cash Advance – Early Settlement Fees

Most merchant cash advance funding options do not come with early repayment charges, which are fees often incurred when loans are repaid ahead of the agreed schedule. This is because the term of the loan can become shorter during busier months. It’s important to note that all merchant cash advance lenders will disclose the associated fees before finalising the agreement.

Cash Advance Financing Repayments

Repayments offer flexibility, meaning they can be higher during prosperous months and lower when your card turnover is smaller. Keep in mind that repayments are due when you earn through your PDQ terminal, which is ideal for businesses that experience seasonal fluctuations or are planning renovations.

Express Merchant Financing

Merchant cash advance loans are quick to arrange and are often deposited swiftly. The application process for MCA loans typically has a quick turnaround time, allowing businesses to secure financing against credit card sales promptly.

Merchant Cash Advance Loans

Given that MCA  is a short-term financing option and funds are typically deposited into your business bank account promptly, many businesses find themselves using this facility repeatedly. It is possible to have multiple merchant cash advance loans simultaneously. Some lenders may also allow you to consolidate these loans into a single cash advance agreement, provided you meet the criteria and affordability requirements

How to Get a Merchant Cash Advance

Understanding the merchant cash advance process is key to determining if this form of funding is suitable for your business. There are numerous merchant cash advance companies available, often associated with your banking providers. If you are new to cash advance loans, you may consider consulting a broker or a high street lender to help you navigate the process initially.

 Can I Speak to Someone to Learn More About Merchant Cash Advances?

Due to the complexities surrounding merchant cash advances, business owners often seek unbiased advice. While there are online platforms dedicated to merchant cash advance businesses, the nature of lending naturally gives rise to questions. Therefore, we recommend picking up the phone! There are merchant cash advance brokers who provide their services free of charge. They can do so because they earn a commission from the banks for placing your business. This means you can benefit from the broker’s expertise without incurring additional costs while gaining valuable insights along the way.



 

Merchant Cash Advance FAQ

At Merchant Advice Service our advisors are fully equipped to help and guide you through the following merchant services comparisons:

What’s better, a merchant cash advance or a bank loan?
Can I speak to someone about a merchant cash advance?
How do I get a merchant cash advance?
What can merchant cash advance loans be used for?
What are the merchant cash advance T&Cs?
Can new businesses apply for cash advance?
Are merchant cash advance loans suitable for small businesses?
What repayments rates are to be expected with merchant cash advance finance?
How are merchant cash advance loan repayments made?
Can I get merchant cash advance with bad credit?

Applying for a Merchant Cash Advance

Clients often have concerns about applying for a MCA. Since it’s a more specialised form of financing, people often feel uneasy about the companies they will be working with and look for recommendations and reviews of various cash advance providers. We advise our customers to use a broker who has access to a range of lenders and handles merchant finance applications regularly.

At Merchant Advice Service, we specialise in PDQ merchant cash advance applications, and our experts are ready to answer any additional questions you may have. Whether you are seeking a merchant cash advance for a small business or require financing up to £500,000, we can assist in various areas, including:

Restaurant and hospitality merchant cash advances

Merchant cash advance services for retail businesses

Merchant cash advances for new businesses

UK-based and overseas lenders

Online merchant cash advance

Merchant cash advance loans don’t need to be complicated. To find the best merchant cash advance providers, reach out to our friendly experts today for a no-obligation, free quotation.

 

Conclusion

A merchant cash advance offers a flexible financing option for businesses. Especially those with a steady flow of card transactions. Unlike traditional bank loans merchant cash advances are repaid through a percentage of daily card sales. This can be beneficial for businesses with variable cash flows, as repayments align with their earning patterns.

Before applying for such a loan, it’s essential to understand the eligibility requirements. This usually includes a history of card transactions and a stable financial situation. The repayment terms, interest rates, and potential impact on your credit score should be carefully considered. Comparing offers from different loan providers is crucial to ensure you get the best terms for your business’s needs.

Merchant cash advances can provide quick working capital. But they might come with higher interest rates than traditional bank loans. Businesses should assess their ability to pay back the loan within the agreed period of time. Consider how it will affect your cash flow management.

Always read the loan terms and conditions carefully. Ask any questions you may have before committing. If in doubt, consult financial experts or consider alternatives like a bank loan comparison or a debt consolidation loan.

Remember, the right financial decision depends on your specific business needs and financial situation.understanding the intricacies of business financing, including how merchant cash advances work alongside traditional business loans, is paramount for small businesses.

With repayment structures tied to card transactions, businesses can manage cash flow effectively through merchant cash advances. When considering funding options, it’s essential to evaluate interest rates, advance amounts, and eligibility criteria. Whether applying for a merchant cash advance or exploring other funding avenues, thorough comprehension ensures informed decision-making for businesses, whether they operate as a sole proprietorship or a limited company.

 

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Libby James

Libby James Co-founded Merchant Advice Service alongside David Bird in 2016. Her finance background, coupled with retail and customer service experience, gave Libby the drive to bring transparency and non-biased advice to the world of merchant services. Having come from the heavily regulated mortgage and insurance industry, Libby found it puzzling that other financial sectors lacked regulation and transparency leaving customers confused and unable to make informed decisions when it came to accepting card payments. This was soon to become Libby’s obsession!

With the help of some of the industry’s best, Libby began to research acquiring banks, complex terminology/regulation, and the problems customers experience within merchant services and payment gateway markets. She spent years on sourcing solutions for complex clients, which previously others were unable to assist with. Libby established relationships with brokers and banks which would soon form the cornerstone of Merchant Advice Service. As a result Libby has been featured in high-profile publications across the web.

Libby is proud to be the entrepreneur’s champion, supporting start-up businesses regularly. Her industry insights can often be found on LinkedIn where she provides free of charge advice and money saving pointers. It’s safe to say she has her finger on the pulse of everything card payments related.

Libby speaks of her experience in founding and running Merchant Advice Service…

‘Merchant Advice Service is one of my greatest achievements to date. We help business owners to overcome card processing issues which can become detrimental to their business. We assist SME’s in finding suitable card payments solutions, helping them create their vision. Each and every day is different, exciting and fore filling. As technology advances I can’t wait to see the way in which the merchant services market advances, and I’m pleased that our business will play a part in educating company owners along the way.’

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