Every business needs cash, whether they’re big or small. But managing cash flow is one of the hardest parts to running a small business. If you’re struggling to keep your finances in the black, your business won’t be able to grow and reach its potential.
You can try a small business loan, but depending on your circumstances, that might not be an option. Merchant cash advances (called MCAs for short), however, are a fast and flexible alternative that could be just the answer you’re looking for. Here’s why:
#1 Repayments are based on what you earn
This is the biggest benefit by far. When you take out a business loan, you commit yourself to making repayments at a certain rate, usually monthly. This is all well and good, but what if you have a particularly bad month? If your business is seasonal, you might struggle to make your repayments in the leaner months. That’s no good for your cash flow.
That’s where a merchant cash advance can really help. With an MCA, you only make payments when your customers are paying you. The repayments are taken as a percentage of your daily card revenue – so if your sales take a slump, so do the repayments.
#2 Quick and easy to set up
Applying for a business loan from a traditional lender can be a lengthy process. They’ll ask to scrutinise your accounts and might even want to see a detailed business plan too. If time is of the essence and you need the funds quickly, that’s just not going to be an option.
By comparison, merchant cash advances can be faster to set up. In fact, you can typically have your cash within just a few business days in most cases, with no long, drawn-out application process.
#3 Perfect credit isn’t a necessity
Some loans require you to have a perfect credit score before your application can be accepted. But that’s no good if your score isn’t in good shape. Often with an MCA, a perfect credit history isn’t a necessity. This is because your eligibility is based on your company’s turnover.
As long as your business is healthy and that you can show you’re taking a certain amount in card transactions each month, you can usually be approved for a merchant cash advance.
#4 No need for collateral
Merchant cash advances are a form of unsecured financing, which means you don’t have to put up any assets as collateral. That’s especially good news for businesses in the hospitality industry, which traditionally don’t have a lot of assets to put up as security.
And some possible drawbacks…
Every financial product comes with their drawbacks, so it’s important to consider your options carefully. With merchant cash advances, the possible drawbacks are:
- You will need to take most of your payments using a card terminal – If you take payments from a mixture of different sources, you might find it harder to get approved for an MCA. The financing company basically needs to know that you’ll be able to pay them back – and if you only use a card terminal for 10% of your sales, that may not be the case.
- You may not be able to obtain the amount you need – Because the amount you can get advanced depends on your monthly turnover, you might not be able to get as much as you need. For example, if you want £10,000 but you only take £2,000 a month, you might struggle to get approved for an MCA.
- Your card terminal might not be supported – Which card terminals are supposed varies by financing company. Some financing companies, including Boost Capital, can work with any terminal – but some might be more limited. If the financing company doesn’t support the terminal you use, you’ll have to decide whether to look elsewhere or switch to a different terminal.