Written by Michael Foote, Insurance and Finance ExpertMichael Foote is the founder of Quote Goat and has over 13 years experience working in the finance, insurance and currency sectors. Since launching Quote Goat he has appeared on TV as well as many of the largest online publications including Forbes, The Telegraph and The Metro. Prior to Quote Goat, he worked in finance in the city for a number of firms including HSBC.
With so many factors affecting cash flow, practically all businesses experience financial difficulties from time to time. When your business is having a bit of a tough time, it’s good to know there are finance options you can use to help you weather the storm.
One of the newest finance options on the market is a merchant cash advance. As a relatively new form of borrowing, some business owners are still unsure about the benefits of an MCA – some still don’t even know they exist!
While a merchant cash advance is similar to a loan, there are some significant differences. These are found most notably in the application process, as well as the way you pay back the cash. Here we’ll go over the ins and outs of MCAs, outlining the main benefits so you can decide whether or not this is a type of finance that works for you.
Payment terms reflect takings
This main difference between a traditional business loan and a merchant cash advance is the structure of the repayments. Whereas with a loan you’d pay the same agreed amount back each month, with an MCA your repayments will depend entirely on your card payment takings. When you make your application, you’ll agree to pay a percentage of your card payments, so your repayments will depend on how busy you are. This can be a relief when you’re experiencing a quiet month or if your business is predominantly seasonal, as you won’t need to make large repayments like you would with a regular loan.
With that said, if you’re experiencing continuous cash flow problems then you should probably consider whether paying a percentage of your takings on a regular basis is really a long-term solution. An MCA is also an unrealistic option if you don’t conduct much of your sales via credit/debit card so keep that in mind too.
No collateral needed
Many lenders will require business owners to put up collateral if they wish to take out a form of business finance. This can be in the form of property, equipment or even stock, and the lender will seek to take ownership of this collateral in the event you fail to keep up with your payments. But what if you don’t want to put up collateral? Worse still, what if you’re a start-up with nothing to offer? If you fall under either of these categories, your options can be severely limited.
This is where merchants cash advances can help. When making your application for an MCA, you won’t be asked to put up any collateral, so this offers an alternative for those who are struggling with other types of finance.
Credit history not considered
If you’re a business owner applying for a loan, a poor credit history can prove to be a major stumbling block. Those credit accounts you took out way back in the day and never bothered to clear can seriously come back to haunt you and you may find your application is rejected, particularly if you have any of the dreaded CCJs on your file.
With an MCA, the lender won’t run a credit check, meaning those with poor credit can be confident they’ll be granted approval. Furthermore, your credit file won’t have another application logged, which can further harm your score.
So, is a merchant cash advance a good fit for your business? If so, be sure to compare merchant cash advances with us. We scour the market and compare quotes from dozens of lenders, guiding our customers towards some of the best deals around.