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Merchant Cash Advance vs Traditional Business Loans

Jan 17, 2017

Once you've established how much you're likely to need, the next step is to find a lending partner that can you to find an option which is affordable, accessible and tailored to your financial requirements.

Merchant cash advances have risen to become a popular type of alternative financing used by eligible UK businesses, but how much about them do you really know?

Before anything, it's important to understand that they are only suitable for businesses that take customer payments through a card reader as this is integral to how your eligibility is assessed and the loan repaid.

Let's take a look at some of the key differences between the flexibilities of a merchant cash advance versus a traditional business loan.



Although a merchant cash advance will allow you to borrow a lump sum of capital in the same way as any traditional business loan, the key difference lies in how the loan is repaid.

Standard loans are typically repaid over a set number of months or years with fixed monthly repayments that contain any interest and fees. With a merchant cash advance, a very small percentage of your loan will be repaid each time you take a credit or debit card payment through your EPOS card terminal.

Although a traditional business loan will give you the added security of knowing exactly what your monthly repayments will be, this can be a problem for newer businesses with fluctuating revenues or those whose main income is generated on a seasonal basis.



MCAs are typically repaid over months rather than years, but that doesn't mean they can't be used again and again. Many lenders offer revolving credit options whereby once a certain amount of the borrowed sum has been repaid, you'll be able to dip back into your set credit limit and bring in more capital if needed.

If you're looking for a long term financial solution then it may be worth considering a traditional, long term business loan which will likely have greater flexibility when it comes to the length of your total repayments.



Whenever you apply for a traditional business loan, you'll have the option of securing the debt against collateral such as property, machinery or stock. Whilst this can be useful for attracting a lower interest rate and a higher chance of acceptance, it does mean that your personal or business assets are put at risk.

Many companies don't have the luxury of owning assets of value or simply don't have the credit/trading history required to get the loan they need. Whenever you're assessed for a merchant cash advance, your lender will take a look at the transactions taken through your card reader over the previous 12 months, helping them to calculate how much you'll be able to reasonably borrow and repay.

An MCA will also usually be underwritten and approved within just a few days and so are ideal for those looking for an emergency financial stop gap.



No matter what loan type you feel is most suitable for your business, you'll need to repay the amount borrowed with interest and possibly fees attached.

Secured, long term business loans will almost always carry a lower interest rate than with a merchant cash advance, however you'll be making repayments over a far longer period of time with risk leveraged against your assets.

Although an MCA may carry a slightly higher interest rate due to its short term nature, don't forget that you'll only be repaying your loan based on card terminal takings and so during quieter months, you'll be faced with significantly reduced repayments.



Create your business profile at Capitalise today and you'll quickly be able to access a wealth of financing options from merchant cash advances and traditional business loans to asset , trade and invoice finance.

We'll match your needs alongside our specially selected panel of expert lenders who will not only be able to provide your business with the capital it needs, but also bring a wealth of experience financially supporting similar businesses within your sector.


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