Merchant Cash Advances: Answers to the Most Commonly-Asked Questions

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Written by Michael Foote , founder of Quote Goat, with over 13 years experience working in the finance, insurance and currency sectors.

As it’s one of the newer finance options on the market, many people are still relatively unsure about merchant cash advances. Consequently, we receive quite a high number of questions from people who want a little more information about MCAs.

There are multiple finance options to choose from and depending on your individual circumstances some may be more suitable than others. This is why it’s important to understand the pros and cons before you even think about committing to any type of finance. So, to help you make an informed decision here are the answers to 5 of the most commonly asked questions concerning merchant cash advances.

What is a merchant cash advance?

In Laymen’s terms, a merchant cash advance is a lump sum of money business owners borrow in which a fixed percentage of your business’ takings will be taken in order to pay off the advance. This will be deducted until the advance is fully paid off.

How does it differ from regular loan?

Without a doubt this is the most commonly asked question regarding MCAs, and it’s probably the most important. In order to weigh up whether a merchant cash advance is suitable for you or not you’ll need to understand the repayment structure, and this is where they differ from a traditional business loan.

Unlike a regular business loan where you’ll pay the same agreed amount back every month, with a merchant cash advance you’ll pay a percentage of your credit/debit card sales instead. This means the higher your sales, the more you’ll pay back to your lender. This can be great for seasonal businesses or if you’re experiencing a tough period, although with lenders constantly dipping into your takings – the amount will usually be taken on a daily basis – it might not be the best option for those with cashflow issues.

What kind of businesses do they suit?

As mentioned before, seasonal businesses could benefit greatly from MCAs as they won’t have to worry about the large repayments you’d expect with traditional business loans when trade is low. Start-ups which don’t own any property or stock to put up as collateral and those with poor credit also make good candidates for an MCA.

Is it easier or more difficult to get accepted?

Unlike a business loan, you don’t need great credit to be accepted for a merchant cash advance. You’ll never be asked to put down collateral either, which can sometimes prove an issue with business loans, especially if the borrower is just starting out and has nothing to put down.

Instead, your suitability in the eyes of the lender is based on your takings. If sales are good and you conduct a large proportion of your sales using card machines, you should have no problems being accepted. You might struggle to be approved if you take a lot of cash, though, as the lender may worry about how you’re going to pay them back.

If you’re looking to compare merchant cash advances, head over to our comparison page now where you’ll find some of the most favourable deals on the market

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