A merchant cash advance is a type of loan. But what sets it apart from other types of lending is that you only repay the loan when you get paid. Rather than having to pay a large lump sum every month, you pay small parts of your loan off with every payment you take from your card machine.
Knowing how this finance works and how it benefits your business will help you to grow if your finances are holding you back. Here is everything you need to know about MCA, and the way that you can use it to scale your business.
Merchant Cash Advance Example
This type of finance isn’t just limited to hospitality venues, but for the sake of this article, we’ll use a restaurant as an example.
An independent eatery is looking to recruit new staff and invest in its kitchen. They estimate that they’re going to need £78,597 to do this. They don’t have this sat in their account, so they ask a broker to find a bank that will lend this amount to them.
The broker finds a lender and gets the full £78,597 accepted as a loan. The lender agrees to a 5% repayment rate. This means that 5% of all future card purchases are paid to the bank until the loan amount has been repaid.
For example, a tradesman comes in and buys a coffee for £3.20. £0.16 is paid to the bank, and £3.04 is paid to the restaurant. Now let’s say a family comes in and spends £128. £6.40 is paid to the bank, and the remaining £121.60 is paid to the restaurant. This continues throughout the months as the restaurant continues to trade, continuously paying back the lender but without strangling the business’s cash flow.
Benefits of Merchant Cash Advance
The main benefit is that the loan only gets paid when you get paid. So, if you have a quiet month, you don’t have to threat about a large bill looming over your head. Your loan is repaid in the background, causing minimal disruption to your income.
Merchant cash advance is also useful for growing businesses. Let’s say you want to hire staff or invest in an area of your business. MCA gives you the capital to do this without putting pressure on your cash flow.
A merchant cash advance is also useful for growing businesses. Let’s say you want to hire staff or invest in an area of your business. MCA gives you the capital to do this without putting pressure on your cash flow.
MCA is also useful if you’re going through a rough patch or quiet month as it gives you a quick cash injection. You don’t have to borrow tens of thousands. You can borrow a few thousand pounds to pay your staff’s wages as well as borrow a few hundred thousand to pay for a refurbishment of your building. The amount you borrow can be anywhere between £1K and £1million, depending on your circumstances.
Getting the Right Funding at The Right Rate
The key to getting the loan you need at the repayment rate you want is to work with a broker who has established relationships with merchant cash advance lenders. This is exactly what we have at Shadowfax Funding Solutions. We work with a sea of lenders who specialise in this area and find the one who will offer you the best deal.
Grow your business with us. Book a free consultation call with a friendly member of our team by clicking here. We’ll run through what you need and give you our expert advice. Then, if you want to proceed, we’ll find you the best offers from a number of lenders. Book your consultation today by clicking here.