London, UK 17th May 2023 - UK Commercial Finance, a London-based commercial finance broker, has launched a campaign to help businesses understand the benefits and potential liabilities of merchant cash advances (MCAs). With these types of loans becoming increasingly popular, the brokerage firm is highlighting common misconceptions.
A merchant cash advance offers a quick and easy way for businesses to access capital without going through the traditional loan application process. However, like any financing option, they come with both risks and rewards. An MCA is a lump sum of cash that is advanced to a business in exchange for a percentage of its future credit and debit card sales. The amount of the advance and the percentage of future sales that are taken vary depending on the lender and the terms of the agreement.
Urging Businesses to Understand the Risks
UK Commercial Finance offers merchant cash advances, but is urging existing and potential clients to understand risks before moving forward. They feel that for many, the high costs of financing could be a risk. Unlike traditional loans, which are typically repaid with interest over a set period of time, MCAs are repaid through a percentage of future sales. This means that the total cost of financing can be significantly higher than with other types of financing.
Another risk UK Commercial Finance warns of is that MCAs are not regulated in the same way as traditional business loans, allowing lenders not to disclose the total cost of financing or adhere to specific guidelines. They feel this can make it difficult for businesses to compare different financing options and make informed decisions.
Because MCAs are repaid through a percentage of future sales, if a business experiences a downturn in sales, it may struggle to repay the advance. This can lead to default and damage the business's credit score.
The Benefits May Outway the Risks, For Some
Although there are potential liabilities in some situations, UK Commercial Finance's merchant cash advances could offer a quick and easy way for businesses to access capital. Unlike traditional loans, which can take weeks or even months to secure, merchant cash advances can often be approved and funded within a matter of days.
An MCA with the finance brokers does not require collateral, which means that businesses do not have to put up assets, such as property or equipment, as security for the advance.
UK Commercial Finance also wants businesses to know that merchant cash advances are repaid through a percentage of future sales, which means that the repayment amount fluctuates with the business's sales. This can make it easier for businesses to manage their cash flow during slow periods.
Furthermore, their MCAs are not reported to credit bureaus and they do not have an impact on a business's credit score. This can be beneficial for businesses that are looking to preserve their credit score for other financing needs.
Understanding the risks and rewards of merchant cash advances is crucial for business owners looking to take out a loan. If an organisation needs quick access to capital and has a steady stream of credit and debit card sales, an MCA may be a viable option. However, a business must carefully consider the risks and costs of financing and compare different options before making a decision.