The current situation for businesses in the UK is complicated and implies great challenges for 2021. Until September 2020, 234 thousand businesses closed permanently, according to data from the study ‘The impact of Covid-19 on UK small businesses’. The government has implemented a support program, however, according to statements made by the director of The Federation of Small Businesses (FSB), it has not been enough. Against this backdrop, financing is often the best tool to ensure that companies do not cease to operate.

80% of the companies that maintain their operations do not expect their revenues to improve in the next three months, according to surveys conducted by FSB. The next step to cover their needs is to research, analyse and seek financing. One possible option is to access Merchant Cash Advance (MCA), do you know what it is?

Merchant Cash Advance is a financial product designed especially for businesses. It consists of granting cash in advance based on sales paid by credit card. Likewise, businesses cover the financing through this same form of payment. In other words, it is a loan set against future income. Below, we will explain the characteristics, as well as positive and negative aspects of acquiring this financial alternative.

Merchant Cash Advance provides capital in a short period of time

This type of financing facilitates access to significant amounts of capital in a short period of time, generally ranging from US$5,000 to US$1 million. Approval is made within 24 hours and delivery time is between two and five days. Usually, the loan repayment term varies between three and 12 months.

The requirements to qualify for a Merchant Cash Advance are simple. The most important is the record of sales paid with a credit card, most lenders request reports for the previous two years, as well as sales over 50 thousand dollars per year. Other requirements to access this financial product are:

– Social Security Number
– Tax identification number
– Questionnaire about your business
– Bank statements
– Proof of citizenship or lease agreements

Advantages

• Credit history is not a major factor in approval: In some financial institutions, they do not require the applicant to have a score higher than 660, as in other financing.
• Fast loan approval and delivery process: With card sales as collateral, the process is fast, simple and accessible.
• May be tax deductible: As with other loans, lender commissions or fees can be deducted as a business expense.
• No collateral required: The sales of the business itself serve as a guarantee.

Disadvantages

• You must make credit card payments: This financial product can only be used by companies that have made credit card payments for at least the last two years.
• Paid on a daily or weekly basis: Unlike commercial loans, this financing is paid directly from credit card sales, it is not a monthly fee that you can cover by other sources.
• Annual percentage rate averages can reach 400%: The factor rate is high and when paid in a shorter period, it can considerably increase its cost.
• Not subject to federal regulations: As they are not aligned with federal regulations like commercial loans, additional fees may apply on the amount requested.
• Late payments can generate extra fees: As with other financing, paying late generates additional charges, but since payments are made daily or weekly, the action time is shorter.

Merchant Cash Advance is a good alternative. However, before applying for any financial product, companies should compare which one is the most convenient according to their business needs and, above all, take into account their payment capacity. Loans can help a company grow, especially today, to overcome all the obstacles that the Covid-19 pandemic has presented.

The impact of financing can be seen almost immediately, some of the areas where you can notice it is in sales, operational processes, infrastructure and brand acceptance. If you don’t take the right financial product all these positive aspects can turn into debts that are impossible to pay.

Companies should take their time and consider all factors before deciding on financing.