Running a business is an exciting journey, but it’s not without its financial challenges. When the need for additional funding arises, the myriad of options can seem daunting. Traditional business loans have long been the go-to solution, but have you considered a merchant cash advance (MCA)? For businesses with high card transactions, MCAs can provide a cost-effective and highly flexible alternative.
In this blog post, we will delve into the reasons why a merchant cash advance might just be the key to unlocking your business’s potential.
Let’s begin with a classic £100,000 business loan, offered at a 10% interest rate over a five-year term. This loan amounts to a total repayment of £150,000, which includes the original £100,000 principal and £50,000 in interest. The fixed monthly repayments come out at approximately £2,500.
However, consider a scenario where the interest rate spirals to 1% per week. In such a case, the annual interest on your loan skyrockets to a staggering £52,000. Over a five-year term, this amounts to a phenomenal £260,000 in interest alone! Once you add the initial loan amount and a 2% exit fee, you’re looking at a total repayment of an eye-watering £362,000.
Now, let’s compare this to a £100,000 merchant cash advance (MCA), costing £118,000 in total, which includes £18,000 in costs. What makes an MCA stand out from traditional loans is its flexible repayment structure. Instead of rigid monthly payments, your repayments become a pre-agreed percentage (usually between 10-20%) of your card transactions.
For instance, if your business makes £20,000 a month in card sales and your MCA repayment rate is 15%, your repayments would be £3,000 monthly. During slower business periods, this repayment amount decreases along with your card sales, easing any potential financial strain.
What truly sets an MCA apart, however, is its top-up feature. Once you’ve repaid 60% of the initial amount, you’re eligible to top-up your MCA. This feature provides remarkable financial agility, enabling you to cover unexpected expenses or capitalise on emerging business opportunities quickly. With the option to top-up as often as needed, an MCA becomes a continually renewable source of funding.
At The Online Mortgage Guru, we’re committed to partnering you with companies who specialise in helping businesses flourish. With an MCA, not only could you save a considerable amount compared to a traditional business loan, but the flexible repayments and top-up options also give you the freedom to navigate the inevitable ebbs and flows of business life.
There is a cap to the MCA amount, set at 2.5 times your monthly turnover. However, this limitation exists to safeguard the financial health of your business. And unlike business loans, there are no hefty exit fees or the need to provide additional security – your card payments serve that purpose.
In conclusion, a merchant cash advance could provide the perfect blend of cost-effectiveness and flexibility for your business. As always, it’s crucial to assess your financial circumstances and future projections thoroughly. We encourage you to consult with a trusted finance expert to make an informed decision. At The Online Mortgage Guru, we’re here to guide you every step of the way. Feel free to reach out with any enquiries. Let us help you empower your business growth with the right financial solution.