Merchant Cash Advance
Are you looking for funding, but don’t want to be bound to a strict instalment-based repayment schedule? Do you want to pay back finance as a percentage of future earnings? To pay more as you earn more and less when your income drops?
Well, that’s exactly what a merchant cash advance (MCA) offers. An MCA offers businesses a lump sum, which is repaid as a percentage of revenue – helping you invest without the rigidity of fixed payments.
Benefits of a merchant cash advance
If you’re looking for a flexible repayment structure that aligns with your business’ cash flow cycles, a merchant cash advance could be for you. Here are some of its benefits.
Repayments are based on income
Since merchant cash advances are repaid as a percentage of revenue, you pay as you earn. This can have a significantly reduced impact on cash flow when compared to a standard business loan, as you’re not paying large amounts during low sales periods.
Unsecured business financing
Merchant cash advances don’t usually require assets to be used as collateral. This can make them more suited to business owners who aren’t looking to put up any assets as security.
Wide range of uses
A merchant cash advance can be used for a wide range of purposes, including purchasing inventory, funding marketing initiatives, and onboarding new team members.
An option for businesses with poor credit
Qualifying for a business cash advance is usually dependent on historic revenue, cash flow projections, and potential for growth. If your business has a poor credit score as a result of a limited history with credit, but you have a great track record with producing revenue, a merchant cash advance could be helpful.
Risk perception
As mentioned, cash advances are repaid as revenue is made. This could make a cash advance a less risky option when compared to a standard business loan, which needs to be repaid per its agreed schedule, no matter what.
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How merchant cash advances work
Find Merchant Cash Advance lenders
The first step is to approach merchant cash advance direct lenders or merchant cash advance companies that specialise in these products. Brokers, like Funding Options by Tide, can connect you to over 120 lenders in the market.
Apply and share sales data
During your application, you might be asked for documentation such as bank statements and card processing records. Some providers do run a credit check, but there are also merchant cash advance no credit check options available – though they can be harder to find and may come with higher costs or stricter terms.
Get approved and receive funds
If approved, you’ll receive a lump sum (the merchant cash advance loan amount). This can typically happen quite quickly – sometimes in just a few days.
Repay through a percentage of sales
An agreed-upon percentage of your daily or weekly sales goes toward repaying the advance. This continues until the full balance, including fees, is paid.
How much can you afford to borrow?
If you're ready to take your business to the next level, use our business loans calculator to get an idea of what you can afford.
Want to understand the cost of your loan?
Use our business loan calculator below to find out how much you can borrow to take your business to the next level.
Calculations are indicative only and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.
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Financial product information
Representative example*
• 7.63% APR Representative based on a loan of £50,000 repayable over 24 months.
• Monthly repayment of £2,252.94. The total amount payable is £54,070.56
*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.
Annual Percentage Rates
Rates from 2.75% APR
Repayment period
1 month to 30 years terms
What is a merchant cash advance?
An advance
An MCA is a form of business financing that provides a lump sum of cash in exchange for a percentage of your future sales. Although many people refer to them as merchant cash advance loans, an MCA is technically not a loan. Instead, it’s an advance on future credit or debit card revenues.
Short term finance
Merchant cash advances are usually repaid in under two years, although they don't have specific expiration dates in the same way loans do.
Business factor rate
A factor rate is how the provider will calculate the cost of the merchant cash advance. The total advance amount is multiplied by the factor rate to determine how much you must repay. If we take £1,000 as an example, and use a factor rate of 1.5, you would be expected to repay £1,500.
The eligibility criteria and application process
Card payments and sales volume
MCA providers usually work based on card payments. The payments don’t need to be taken in store, they can also be processed online.
A track record of revenue
To be eligible, you may have to prove that you have been making enough revenue to match the providers expectations on timelines and percentages.
Submit supporting documentation
To apply for an MCA, you will likely need to submit supporting documents including bank statements and card processing statements that prove your business performance. Approvals can come in as little as a few days.
Learn more about merchant cash advances
Merchant cash advances in action
Example: Imagine you run an e-commerce business selling vintage trainers. You make around £4,000 in sales. The Winter season is coming up soon, which means Black Friday sales, Christmas shopping, and the New Year rush are all in your future.
You need to stock up before the season starts, but you only have enough cash to buy your usual amount of inventory, which means you’ll run out of trainers before Super Saturday. This gap in funding could cost you thousands of pounds at the most high-revenue time of the year.
A merchant cash advance provider could forward you the funds required to purchase the necessary inventory. They would calculate the repayment amount as a multiplier of the advance, for instance, if you borrow £5,000, they might ask you to repay £6,500, which is £5,000 x a multiplier of 1.3. You would repay this as a percentage of revenue, up until the full amount is paid.
Does a merchant cash advance affect my credit score?
It could, but not in the way you may be used to. A merchant cash advance is different from a loan – providers don't usually report payment activity to the big credit bureaus. There is no specific payment timeline, so it’s unlikely that you'll miss a payment in the same way you could with a loan.
What could happen with a merchant cash advance is that the chunk of revenue you are losing in repayments could put a stain on your finances, which could lead to late bill and loan payments, which could then impact your score.
Not only that, but if you do default and the provider takes legal action, you could end up with a mark against your report.
Lastly, like lenders, some MCA providers do run a hard credit check, which could impact your score, particularly if you are applying for multiple forms of finance within a single year.
What if my business primarily takes cash?
Merchant cash advances are usually based on card transactions and sales, either online or in-store. If your business works primarily with cash, feel free to get in touch with us by getting a quote here. Tell us a bit about your needs and we’ll see if we can find you anything suitable.
Is a merchant cash advance regulated by the FCA?
No, a merchant cash advance is not regulated by the Financial Conduct Authority (FCA). This reduced regulatory component can mean providers vary in the ways they work and the services they offer.
It’s advisable to work with established businesses, and you might like to consider working with a broker like Funding Options by Tide. Our connections in the business finance industry are extensive – we work with over 120 lenders, so we’re confident in our ability to help you find the best fit for you.
How much does a merchant cash advance cost?
The key figure is the factor rate (also called a “multiplier”). Here’s what you need to know:
Factor Rate: Multiply the amount advanced by the factor rate to find the total repayment.
Example: If you borrow £5,000 at a factor rate of 1.3, you’ll repay £6,500 in total.
No Strict APR: Unlike standard loans, MCAs don’t usually come with an APR. You’ll see an overall cost instead, calculated via the factor rate.
Because merchant cash advances aren’t tightly regulated by the FCA, costs can vary widely. Working with a reputable broker or merchant cash advance lenders with solid reputations can help you avoid hidden fees.
How long does it take to repay?
There is no strict repayment schedule with a merchant cash advance. Most are repaid within a few years and an MCA is usually considered a form of short term funding, but repayment can span longer.
To calculate an estimate of how long an advance would take you to repay, start with the average revenue you receive in a month. If your income varies greatly, consider adding up your total revenue for the year and dividing by 12.
Then, calculate the percentage of your revenue that you'll be paying to the lender. Calculate the total amount you'll have to repay, which is the amount advanced times the agreed multiplier. Divide this number by the average amount you'll repay as a percentage each month and you should arrive at the estimated number of months it will take you to repay the advance.
Can I apply if I have bad credit?
Yes, you can apply if you have bad credit. Merchant cash advances are usually based on revenue amounts, income, projections, and the likelihood of business growth, rather than credit scores, so if you have bad credit, an MCA could be a useful option for you.
Risks and drawbacks to consider
As with any funding solutions, there are several drawbacks to consider, including the following.
Higher cost
A merchant cash advance is usually more costly than a traditional loan. If you’re flexible, consider requesting a few possible quotes from a broker, like Funding Options by Tide. This could help you get an idea of what you may be able to get and for how much.
Unregulated
Merchant cash advances are not as regulated as more common forms of funding, such as business loans. Consider working with an established broker, like Funding Options by Tide. Check reviews and always read the terms very carefully before entering into an agreement. If in doubt, ask questions – a reputable provider shouldn't shy away from pressing questions.
Regular repayments
While repaying the advance as a percentage of revenue can help with cash flow, it can also become a hindrance if not budgeted for correctly. After all, you have access to less revenue, which can be a strain.
Debt cycle
Some business owners find themselves trapped in a debt cycle. This is when a business takes out funding to cover existing debts or ongoing expenses in a continuous cycle. The loans grow bigger and bigger, creating more of a strain on cash flow and eating into profits. Only consider taking out a merchant cash advance or another form of finance if you are confident in your ability to manage debt.
If you’re specifically looking for merchant cash advance no-credit-check solutions, be aware these typically come with higher costs or stricter terms, and true “no credit check” products can be rare.
Why choose Funding Options by Tide to help you find a merchant cash advance?
Figuring out which type of funding, which lender, and what terms you’d like to secure can be a tough battle. Is an MCA right for you, or is there something better out there for you? Something with better terms, better costs, and an easier repayment structure? Who should you trust? What would happen if you couldn’t meet your repayment obligations? These are all questions business owners can find themselves asking when seeking funding.
Now, imagine there’s someone to hold your hand through all of this. Someone committed to looking after your best interests. Someone who has helped facilitate over £863,303,475 for more than 18,600 happy customers.
Now imagine that that “someone” is a team of experts that have been referred to as, “The matchmaking website for small businesses and lenders,” by The Daily Telegraph.
That “someone” is us – Funding Options by Tide, and our team of experts is here to help. Just submit your information here to get a quote and find out if you’re eligible for funding of up to £20 million.
What are the alternatives to a merchant cash advance?
If a merchant cash advance isn’t quite what you're looking for, or if you’re still just exploring your options and would like to see what’s out there, here are some of the other types of funding available.
Business loan
A business loan involves you receiving a cash lump sum, but unlike a merchant cash advance, rather than repaying as a percentage of earnings, you pay on an instalment basis. These instalments could be spread over anything from a few months in the case of short term business loans, to many years.
Business loans come in two forms – secured and unsecured loans. Secured business loans require collateral, whereas unsecured business loans do not. Secured loans tend to have lower interest rates than unsecured loans as they have less perceived risk to lenders.
Working capital finance
A working capital loan can help you cover short term expenses, fund growth projects and bridge gaps in funding. You can repay the loan over a predetermined period of time, which can help you factor in the repayments during budgeting season, making cash flow more manageable.
Bridging loan
If you’re looking for a substantial amount of funding to bridge a gap in finances and are looking to repay the loan within the next year or two, a bridging loan may be for you. A bridging loan is a form of short term funding that uses an asset as security, enabling you to borrow substantially more than is usually offered with a standard business loan.
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
