Merchant Cash Advance

Sometimes called Business Cash Advance, Merchant Cash Advance (MCA) is a product available for businesses that receive a significant proportion of payments for their goods or services through debit or credit cards.

The finance provided is essentially a prepayment or advance against future revenues due to the client business from its card transactions. Repayment of the advance will be taken directly from the card receipts due to the business via the card processor (or merchant acquirer) that provides the card facilities. Repayment will generally be taken automatically as a fixed percentage (rather than amount) of the card receipts, as agreed at the outset of the facility. This means repayments will increase and decrease in line with the performance of the client business.

From the perspective of the client business, an MCA can be seen as an unsecured form of finance and the facilities can be set up quickly. However, the finance provider is effectively taking security against and/or taking assignment of the funds due from the card payments.

In making a decision to provide finance, an MCA provider will focus more closely on the typical volume and pattern of card payments the prospective business receives in order to ensure that the amount advanced can be repaid and is affordable for the business. The provider may consider, but will not rely upon, other metrics such as credit scores or financial history. Focusing on the method of repayment rather than the business itself means an MCA product might be available in circumstances where other types of lending will be more limited or not available.

Conceptually, MCA could be seen as somewhat similar to invoice finance as, at a high level, repayment of an initial amount advanced is taken from future revenues. They are distinguished by the types of debts involved which determines the types of business for, and the circumstances in which they will be appropriate. An invoice finance provider will be providing finance against business-to-business commercial debts (or ‘receivables’, as represented by invoices). A specialised MCA provider, however, will be specifically extending finance against the client business’s credit or debit card receivables.