Merchant Cash Advance

A Merchant Cash Advance could be a very useful way for a business to access a lump of cash, quickly, without needing any security. Uniquely, with MCAs, the money is repaid in instalments based on a percentage of your card sales.
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Say your business gets a sudden surge in demand and you need some urgent stock, or even some temporary staff to take advantage of the opportunity. You’ll likely need money for those things now, which your normal cash flow may not allow. A Merchant Cash Advance could help by providing a swift injection of cash which you can use to fund your business needs, then repay as you benefit from the increased sales.

How does a Merchant Cash Advance work?

A Merchant Cash Advance is unique in the way that the loan is calculated and paid back. The amount loaned is calculated on your business turnover, and paid back at an agreed percentage of your daily card/eftpos sales. The interest is agreed at the outset of the loan, and is applied to the full amount, this is the amount you will pay back, at the agreed percentage of your sales. No matter how long it takes to pay it back, you will pay the same total sum.

The percentage charged can sometimes varies between about 1.2% and 1.4%. So, for an advance of $50,000, at a rate of 1.25%, you could pay back $62.500. And, as those repayments are as an agreed percentage of your card sales, it could take you say 3 months or 18 months to pay back, either way, the total you pay back remains the same, though you may incur additional fees over a longer period.

What can a Merchant Cash Advance be used for?

A Merchant Cash Advance can be one of the quickest methods of getting cash into your business. If your business has a steady sales record, it’ll usually make it easier to qualify. Here are some reasons a Merchant Cash Advance may be used:

  • Buy stock
  • Hire seasonal staff
  • Pay outstanding bills
  • Get much needed equipment
  • Fund expansion plans
  • Renovate your premises
  • General expenses

What are the benefits of a Merchant Cash Advance?

There are many benefits to a Merchant Cash Advance, these can include:

  • Simple application process: Fewer documents required and your credit score can be less important; cash flow is what counts.
  • It’s quick cash: Merchant Cash Advances often take only one or two working days to settle.
  • Repayments happen automatically: Because repayments are based on credit card transactions, you don’t have to bother about remembering to make repayments manually.
  • Consistent cash flow is king: Merchant Cash Advance repayments are a percentage of your sales. So your repayments are generally in line with your sales, and that helps keep your cash flow consistent.
  • Limit your debt with a small loan: Unlike some other business loans, with a Merchant Cash Advance you can usually borrow as little as $5,000. So you can keep your lending to a level that you’re comfortable with.
  • No looming fixed payments: Merchant Cash Advance repayments are based entirely on a percentage of your cash flow.
  • No deadlines to miss: A Merchant Cash Advance costs you the same amount of interest whether it takes you 3 months or 18 months to pay back.

Are there any cons to a Merchant Cash Advance?

Yes, there are ‘downsides’ to an Merchant Cash Advance, to compare against the benefits they offer. Some of the cons to consider are:

  • Cost: As Merchant Cash Advances are assessed according to your projected sales, the lender is taking a risk on how your business will perform. As a result MCAs tend to cost more than other business loans. Check the annual percentage rate to compare an MCA to other loans.
  • Usually more suited to businesses with a high turnover of card sales: Otherwise it could take you too long to repay your loan.
  • Normally only a short-term solution: Most Merchant Cash Advances come with terms of up to one year, so they are viewed as a short-term solution to free up your cash flow.
  • Check restrictions: Some lenders may have rules which can affect the running of your business, like having to change credit card companies. Make sure you read the terms and conditions carefully.

Is an asset required as security?

Generally, no asset is required for a Merchant Cash Advance. The security of the loan is your future sales, and the qualification for the loan is typically your previous sales record.

How quickly can I access cash with a Merchant Cash Advance?

Very quickly, compared to some other business loan products. Sometimes they can be funded within 1 to 2 days.

How do I find out if I’m eligible?

Merchant Cash Advances are basically backed by your sales, so lenders are usually not so concerned with your credit score and don’t need so much information. If you have a stable business, with a good volume of sales and a consistent cash flow, you may well be eligible.

What might disqualify me?

Things which may make you ineligible include:

  • Outstanding debt
  • Low volume of credit card transactions
  • Lack of business history
  • Poor outlook for your industry
  • Inconsistent revenue

Looking for an unsecured loan for your business? Compare from Valiant’s range of products and providers

At iSelect we’ve partnered with Valiant to make it easy for iSelect customers to find a business loan product that suits their business. Valiant compare a range of products from over 80 lenders across Australia, and can manage the process of finding and applying for your finance solution, as well as settling funds. Get started comparing online today!

Last updated: 18/10/2021