Is merchant cash advance a good idea for retail store businesses

What is MCA

Merchant cash advance (MCA) oftentimes called merchant funding is a type of financial solution for businesses. Small to medium businesses and even big corporations can gain financial backing by using merchant cash advance to improve their cash flow.

Through MCA, businesses obtain a sum of money in return for selling their future card sales.

How does MCA work?

MCA is a financial contract signed between the business and the provider. It takes place through the following steps

• The business must request a specific amount called MCA advance by contacting a provider of choice.
• The provider analyses the business to decide its current financial position to decide whether the requested MCA advance is possible.
• The provider then suggests a factor rate accordingly. A factor rate is the fee charged by the MCA provider. It’s measured as the amount of pence charged per pound taken in MCA advance.
• After the contract is confirmed by both sides, the MCA advance is transferred to the business in said number of days. Usually, it’s 2-4 days or could also be the same day depending on the terms of the contract.
• After MCA is in action, the business pays back a calculated amount of money every month from its card sales.

Why should retail stores consider MCA?

Retail stores going through a rough patch can benefit from MCA. There are times when retail stores face a dip in sales like immediately after holidays, where they could use some external cash to maintain their cash flow.

Financial solutions like MCA provide quick access to funds, that too without any apparent effect on the business’s credit rating. Additionally, the repayment terms of an MCA are flexible according to the business’s traffic of card sales.

This means when the card sales are low, the repayment amount will also be low. So fluctuating card sales are also not a major issue.

Requirements of MCA

For businesses like retail stores to qualify for MCA funding, the following things are needed:

• A healthy volume of card sales
• Retail stores should be in business for at least 6 months
• A UK identity
• A UK business registration

Where to spend your MCA funds

Once you get your MCA funds, it’s important to think about how to use them. A good idea is to focus on short-term expenses that can bring in quick revenue. For example, you can use the funds to pay suppliers, restock inventory, or cover unexpected bills that might cause problems. You can also use the money to pay for utility bills like electricity or water and make sure your employees get paid on time.

It’s better to avoid using MCA funds for big projects like launching a new product or doing major renovations. These kinds of investments take longer to pay off and could make it harder to manage your repayments. Instead, focus on urgent needs and things that will bring in quick revenue.

Pros and cons of MCA for retail stores

To summarise, let’s review the pros and cons of MCA

Once you decide to go for MCA, now’s the time to look for a provider. Make sure to choose a trustworthy and reputable provider that is an expert in the retail industry. You can do this by checking their online reviews and testimonials from past businesses who have worked with them. Research the MCA market to compare rates and find the most suitable one for yourself.  Don’t be shy to negotiate the terms and factor rates for your business.

MCA provides quick funds as instant as the same-day funding and the repayment terms are also flexible. Even with all these pros, be mindful of your financial decisions. MCA can be a good solution to short-term problems but if you find your business in need of MCA more often, its time that you consider other things that might be affecting your cash flow negatively. Feel free to explore all your available options and go for the one that you deem the most suitable. For more help regarding choosing the best MCA provider for your retail store, ComparedBusiness is available.