What is a Merchant Cash Advance?
A merchant cash advance (MCA) is a form of short-term funding specifically designed for businesses that accept debit and credit card payments. With an MCA, lenders provide businesses with an upfront lump sum of money, and the repayment is made through a percentage of their ongoing credit card sales. The unique aspect of an MCA is that it does not require businesses to provide collateral, such as property or inventory, as security for funding.
How Much Can You Borrow?
Generally, businesses can borrow up to 150% of their monthly card sales. However, lenders typically require a minimum of three months of trading history and a monthly card transaction turnover of at least £10,000. The loan amount can range from £2,500 to £300,000, depending on your turnover and other conditions set by the lender.
How Does a Merchant Cash Advance Work?
Once you determine the amount you wish to borrow, you and the lender agree upon a percentage repayment corridor for your debit and credit card sales. This repayment percentage typically ranges between 10% and 18% of each sale. Unlike traditional business loans that require fixed monthly repayments, MCAs are repaid as and when you make sales. If your business experiences a slow month in sales, you are only expected to pay back in line with the agreed-upon corridor. This flexibility differentiates an MCA from traditional loans. It is important to note that early repayment does not offer any benefits, as the total repayment amount is predetermined. The borrowed amount is deducted daily, weekly, or monthly as a percentage of your company’s sales, plus interest, until the amount is fully repaid.
What Is a Factor Rate?
To determine the total repayment value of the borrowing, lenders use a “factor rate.” The factor rate is a simple calculation where the funding amount is multiplied by the factor rate (usually between 1.1 and 1.5). For example, if your business borrows £5,000 with a factor rate of 1.25, the total repayable amount will be £6,250 (£5,000 x 1.25). The factor rate is calculated based on your business’s trading performance, sector, and associated risk factors.
How Long Does a Merchant Cash Advance Last?
Repayment timescales for MCAs typically range from three to 18 months, depending on the agreement with the lender.
What Can You Use the Money For?
Merchant cash advances can be used for various business purposes, including renovating and refurbishing your premises, purchasing stock, working capital, marketing and advertising initiatives, and business expansion.
Who Are the Key Providers of Merchant Cash Advances in the UK?
Here are some popular merchant cash advance companies in the UK:
1. 365 Business Finance:
– Cash advance amount: £10,000 to £400,000
– Collection rate: 5-16%
– Speed of decision: Under 24 hours
365 Business Finance offers merchant cash advances to small businesses that have been trading for at least six months. They have a high approval rate of 90% and take repayments as a small percentage of credit and debit card sales until the loan is fully repaid.
2. Amazon:
– Cash advance amount: £500 to £2 million
– Collection rate: 5-20%
– Speed of decision: 24 hours
Amazon’s merchant cash advance offer is aimed at small businesses selling through their platform. The actual funding is provided by YouLend, and the minimum requirement is three months of trading history.
3. Capify:
– Cash advance amount: £5,000 to £500,000
– Speed of decision: Same-day approval and funding within 24 hours
To qualify for Capify’s merchant cash advance, businesses must have at least one year of trading history and receive monthly card payments of at least £20,000.
4. eBay:
– Cash advance amount: £500 to £1 million
– Collection rate: 5-20%
– Speed of decision: 24 hours
Similar to Amazon, eBay offers merchant cash advances to small businesses through YouLend. The acceptance rate is 90%, and applicants must have a minimum of three months of trading history.
5. Just Eat:
– Cash advance amount: £500 to £1 million
– Collection rate: 5-20%
– Speed of decision: 24 hours
Just Eat also collaborates with YouLend to provide merchant cash advances to small businesses. They have a 90% acceptance rate and require a minimum of three months of trading history.
6. Liberis:
– Cash advance amount: £1,000 to £1 million
– Collection rate: 15-20%
– Speed of decision: Within 24 hours
Liberis has arranged £1 billion worth of finance for 26,000 businesses. They also offer white-label services to brands like Barclaycard, Global Payments, Tide, and WorldPay.
7. Momenta Finance:
– Cash advance amount: £10,000 to £150,000
– Collection rate: 10-15%
– Speed of decision: Funds received within 24 hours
Momenta Finance supports SMEs with £150 million worth of lending. Applicants need a minimum of six months of trading history and £10,000 monthly card sales.
8. Nucleus Commercial Finance:
– Cash advance amount: £3,000 to £300,000
– Speed of decision: Same day
Nucleus Commercial Finance offers advances of up to 200% of monthly card transactions. They require a minimum of four months of trading history and several other criteria.
9. PayPal Working Capital:
– Cash advance amount: £1,000 up to £125,000 for first-time applicants; up to £185,000 for subsequent applicants
– Collection rate: 10-30%
– Speed of decision: Usually immediate response, with funding transferred to your PayPal account within minutes
PayPal offers merchant cash advances through their PayPal Working Capital program. The funding amount and terms vary depending on your history with PayPal.
These are just a few examples of merchant cash advance providers in the UK. It is crucial to carefully consider their terms and conditions before making a decision.
