Fri. Feb 14th, 2025

Before you apply for Merchant Cash Advance, it is convenient to understand the eligibility requirements and have an idea about the application process.MCA is for businesses of all types and sizes: from startups, and SMEs to large enterprises.

What is Merchant Cash Advance

Merchant Cash Advance (MCA) is one of the most popular funding solutions in the UK’s financial market. It is especially known for its flexible repayment terms and immediate availability of funds. 

With MCA, a business sells a fixed percentage of its future card sales in exchange for a lump sum of money called an MCA advance. These funds are used by businesses to improve their cash flow, deal with unseen expenses, launch a new product, etc. 

What is an MCA lender?

The institution which provides the services is called an MCA lender. An MCA lender makes a profit by charging a fixed fee called a factor rate. This fee remains consistent till the end of the contract. A factor rate is calculated as a fixed amount of pennies charged per pound received by the business in advance. 

Please note that MCA is restricted to card sales only. Cash-based transactions don’t count in future sales.

What are the eligibility requirements?

MCA is a widely accessible financial solution, but there are still some baseline requirements that businesses need to meet. These are discussed further:

Monthly card sales volume

The factor rate quoted by the MCA lender is done after analysing the traffic of non-cash sales of a business. By doing this, an MCA lender can understand the scope of the transactions. There’s no collateral involved in the process, so the lenders rely on taking a risk. The card sales volume shows the health of a business which helps the lenders decide if the business is capable of repayment. 

The process of MCA is centered around your future card sales, not your past financial decisions. 

Business period

A business needs to be in operation for a minimum amount of time to be able to attain MCA. Majority of MCA lenders in the UK have their own specific guidelines for this but a ballpark idea is a minimum of 3-6 months. This is important because to view the financial health of a business, having some previous sales data is necessary. Without that, it is impossible to evaluate the decision to provide MCA funding for lenders themselves.

Business location

For UK-based MCA lenders, it’s important that the businesses are registered in the UK under the same country’s laws. 

Business industry

It is best for a business to work with an MCA lender who is experienced in your industry. It is because different business industries have different struggles with cash flow like, a restaurant might struggle with slower cash flow in January AFTER the holiday period, while a retail shop might need extra money to stock up BEFORE the holiday season. An MCA lender who knows your industry can offer terms that fit these challenges better.

Moreover, factor rates can be higher for high-risk business industries like gambling instead of low-risk business industries like restaurants, retail, or the health industry.

Do you need a credit check for MCA eligibility

To assess your business position, MCA lenders perform a soft credit check before quoting you the factor rate. This credit check is soft and it only reveals specific details about your business as opposed to a hard check usually performed by traditional banks. 

Credit checks for MCA also do not impact your credit score negatively as long as you deal with your repayments on time. It’s advised to work with an MCA lender who is competitive and doesn’t perform unnecessary hard credit checks. 

Application for MCA

To proceed with the application for MCA, we will give you some general information that you can follow:

  • Search and compare lenders
  • Most lenders allow you to fill out the application form online. An additional tip is to process the application at the start of the day, so you can get the same or next-day funds if that’s what you are going for. 
  • Wait for the application to get accepted and wait in the meantime.

Remember that MCA is a temporary financial solution for short-term issues. Repeating MCA contracts is not a good sign for any business so make sure your business practices are financially sustainable to support your working model. If you need assistance for choosing the right MCA provider unique to your eligibility, ComparedBusiness is here to help you.

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