Quick History Lesson On Merchant Cash Advances

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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.

If you’re a business owner looking for finance, there are quite a few options on the market. One of them is a merchant cash advance, which is a popular alternative to a loan.

As a form of finance, an MCA is similar to a loan, although there are some distinct differences. The main distinctions are in the way the finance is repaid. Whereas with a traditional business loan the borrower would be required to pay back the same agreed amount each month until the money is repaid, with an MCA you pay back a percentage of credit/debit card sales instead.

But where did MCAs come from, how long have they been around and why are so many business owners still unaware they exist? Some people believe MCAs have only been around a short while, but while this type of finance is comparatively new, it’s actually been on the market for over 20 years now.

With many business owners unable to get favourable terms on loans – or get accepted for loans at all – there has always been a need for alternative funding. This gave Barbara Johnson, owner of the Gymboree Playgroup Franchises, an idea. Struggling to get the capital she needed for a summer marketing campaign, Barbara wondered whether it’d be possible to borrow money against future credit card sales made by the parents whose kids used her services.

The answer was no, which led to Barbara and her husband setting up a company in 1998 called AdvanceMe, the very first company offering merchant cash advances. AdvanceMe then patented the technology allowing the split of credit card sales, initially giving them full control of the market they’d created.

For the next few years, the MCA industry grew at a steady but slow rate, although with very few competitors entering the market in the early days progress was minimal. After the financial crash of 2008, things began to change. With lenders struggling to offer enough capital due to restrictions set out by financial instructions, business owners began to look for alternatives and the merchant cash advance industry was more than happy to fill that vacuum.

During the early days, MCAs had a payback plan that was predetermined on future sales. These days things are slightly different, and repayments are usually based on a business’ daily or weekly takings, which has its benefits – mainly for seasonal business, which won’t have to make large repayments when takings plummet during an off-season.

Despite one or two changes, MCAs are pretty much the same as they were when they were invented: a more flexible form of finance that doesn’t require you to put down collateral or have great credit to be accepted. While MCAs aren’t for everyone, they are designed to help business owners in specific situations and to this day they provide an effective alternative to traditional bank loans.

If this type of borrowing seems appealing to you, be sure to compare merchant cash advances with Quote Goat. We compare deals from dozens of lenders to bring you some of the most attractive terms on the market, so if you’re looking for a MCA head over to our comparison page now!


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