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A UK Credit Broker’s Guide to MCAs

Team 365 finance

Written by Team 365 finance

Cash advance

As a credit broker, it’s in your best interest to offer the best financing options for small businesses when they come to you for guidance. In order to provide your clients with the best option available, you need to be aware of what financing options are on the market. Depending on your usual clientele, this might mean researching the options offered by bigger banks or learning about alternative financing options.

If your clients are often interested in alternative financing, you could benefit from learning more about merchant cash advances. These advances (also called MCAs), are a hugely popular option for businesses looking for fast and easy access to funding.

In this article, we’ll define what a merchant cash advance is and explain what businesses typically spend their advances on. We’ll also discuss what types of SME tend to be interested in a merchant cash advance, so you better understand the target audience for MCAs. Read on to learn more.


What is a Merchant Cash Advance?

A merchant cash advance — also known as a business cash advance — is an unsecured business finance solution that allows business owners to quickly raise funding. It differs significantly from a traditional bank loan in that:

  • There are no interest rates, only a fixed fee.
  • There is no need to provide collateral such as property (businesses only need to provide a personal guarantee).
  • There is a much faster approval time since there is less required documentation.
  • There are no restrictions on how the funding from an MCA can be used, whereas a bank loan typically comes with multiple stipulations on how it can be spent.

Instead of requiring monthly payments, an MCA is repaid by taking a small percentage of the business’ future debit and credit card payments. As such, the repayments reflect the current state of their income, instead of being a set (and sometimes unaffordable) amount. When the business has a quiet period, its repayments will be lower, and when the company starts seeing more customers again, they will repay more.

Because the payments are variable, and no collateral is held over the head of the business that receives the advance, an MCA is a very low-stress form of funding. This alone makes it one of the best financing options for small businesses. But there are multiple other benefits. For example, a merchant cash advance can be spent on a wide variety of business investments.


What Can a Merchant Cash Advance Be Spent On?

As we mentioned above, a merchant cash advance can be spent on virtually anything because there are no spending requirements established during the application. So, if a business needs funding to purchase a number of very different business assets (such as new property, new equipment, and new raw materials) all in one go, a merchant cash advance could be exactly what they’re looking for.


We’ve included a few spending options for MCAs below. But, for more information on the benefits and potential uses of merchant cash advances, you can read our Complete Guide To Revenue-Based Financing here.


New Property

Although many businesses operate remotely or exclusively digitally, investing in property is still an important step in their development. For brick-and-mortar retail, purchasing additional properties is essential to access new markets and expand their reach.

A company looking for any of the below property options could benefit from an MCA:

  • Warehouse space: Even digitally-focused companies like eCommerce retailers still need to deal with physical products. As such, they may eventually need to purchase a space to make sure their goods are warehoused safely.
  • Brick-and-mortar stores: A traditional retail model requires businesses to buy new properties if they want to expand into new markets outside their current location.
  • Office space: Small, one-person businesses may even be run out of the owner’s home. When they develop to the point where they need to establish a separate corporate headquarters for your company, they will likely require funding.


Purchasing Equipment

Heavy manufacturing tools and similar specialised equipment can be hugely expensive, especially industry-specific tools. SMEs looking to purchase an upgraded version of their current equipment (such as garages or construction companies) may not be able to afford new equipment (or repair their existing equipment) without financial aid. Similarly, transport-focused companies like couriers may need to invest in vehicles (or maintenance for their vehicles) to improve the company.


Hiring Staff

One of the biggest benefits of merchant cash advances is that they can be acquired quickly, which makes them a great tool for supplementing cash flow during low-income months. Because they can be used to supplement cash flow, as well as helping fund big investments (like property or equipment) they can also cover monthly expenses, such as wages for staff.

Here are a few ways alternative financing options can be funnelled into staff-based expenses:

  • Recruitment: Finding, interviewing, and hiring adequate staff can cost considerable money. An MCA can help companies either outsource recruitment or even hire an internal recruiter.
  • Salaries: Increasing salaries helps immensely with staff retention, so using an MCA to bump up your wages can help you keep essential staff. Although most finance is provided as a lump sum, UK credit brokers can suggest the use of funding to temporarily supplement a salary budget during times of low revenue.
  • Temporary hires and advisors: Businesses that complete one-off jobs rather than constantly focusing on selling a product or service can use alternative funding to pay for external help, such as hiring an expert on a temporary basis to ensure the success of a particularly important project.


What Businesses Commonly Apply For MCAs?

As a merchant cash advance differs significantly from most other financing options, the target audience for them is also different. If you’re a UK credit broker trying to present relevant finance options to your customers, it’s important to know who will be interested in an MCA before you suggest it as an alternative financing option.

Some businesses will seek out a merchant cash advance because they are having difficulty applying for a traditional business loan. If a small business has a poor or limited credit history, it’s likely that bigger banks will deny their application. They may also need proof of profitability and collateral to qualify. A merchant cash advance has much less strict criteria, making it far more accessible for SMEs with poor credit.

Businesses that need money quickly are also more likely to consider MCAs, as this kind of funding can be acquired much faster than traditional alternatives. Seasonal or weather-dependent businesses whose operations are focused on a short period of time may look for an MCA for similar reasons: if their peak sales season is approaching and they are short on cash, the MCA can help them afford their final preparations.


365 finance: A Leading Provider of Merchant Cash Advances

Are you looking to work with a trustworthy and dependable provider of alternative finance? 365 finance has helped hundreds of businesses fund their expansion through our innovative Rev&U product.

365 finance is an award-winning finance provider, as well as an accredited member of the British Merchant Cash Advance Association (BMCAA), the Federation of Small Businesses (FSB), and the National Association of Commercial Finance Brokers (NACFB). Our team of qualified experts can help connect credit brokers’ clients to the funding they need in the form of low-risk, flexible MCAs.

By working with UK credit brokers, we can help even more businesses grow and succeed. If you want to know more about working with us as a credit broker, contact us today.

At 365 finance, we can provide both long and short-term financial solutions, with revenue-based funding available from £10,000 to £400,000 in capital. Businesses can apply for Rev&U today without affecting their credit score. Speak to our team to find out how we can help you. To find out more, head to our website.