A Broker’s Guide to Offering Merchant Cash Advances

Small business lending has changed substantially in the last 10 years, with the demand for flexible and rapid funding alternatives being the main driver of change.

50% of smaller businesses used finance in the third quarter of 2023, which was up from 41% from the first quarter of the year. However, the types of funding that small businesses want are also changing.

Business owners want flexible solutions where they can get access to the funds they need quickly and pay the money back on their own terms – which makes Merchant Cash Advances (MCAs) such an attractive option.

We know that as a broker you’re already familiar with these finance options, but keep on reading to find out more about how 365 Finance offers them, and the best practices we have found on how to approach conversations with your clients about this funding option.

What is a Merchant Cash Advance?

A Merchant Cash Advance is an unsecured business finance solution that allows business owners to raise capital much faster than a traditional loan.

What makes this product so attractive, especially to smaller businesses, is that there are no interest rates or fixed monthly payments. Instead, repayments are revenue-based: when their customers pay, the facility gets repaid.

For small and seasonal businesses, the Merchant Cash Advance product can adapt to the ups and downs of doing business, which can make a big difference with the financial stress we know many business owners deal with daily.

How do Merchant Cash Advances Work With 365 Finance?

Let’s say you’re working with a client that owns a local cafe and processes around £25,000 in credit and debit card sales per month. Their business is steadily growing and they’ve found a new location, so they’re thinking about opening up a new cafe – but they need some extra funds to do that.

With an MCA from 365 Finance, they’ll be eligible to receive between £25,000 and £31,250 as an unsecured business cash advance, and they won’t need to worry about interest rates or fixed terms. Once their advance has been approved, a small percentage (a maximum of 15%) of their monthly credit and debit card payments will be taken automatically to repay the advance.

What makes an MCA better than other funding solutions?

✅ No APR or fixed monthly payments

✅ Over 90% of applications approved

✅ No security or business plans required

✅ Approval within 24 hours

Why Offer Your Clients an MCA?

Raising funds for businesses can feel like it’s never been harder. Traditional bank loans have become less attractive for small businesses, with SME applications for bank loans falling from 80% in 2018 to around 50% in 2023. We’re now at a point where just over half of SMEs in the UK have a negative view on traditional banks.

Regardless of the industry they’re operating in, business owners want the same thing: quick access to funds to keep their business running, without the stress of expensive repayments.

Revenue-based funding options resonate with these challenges. As MCAs are based on a business’s future credit or debit card sales, repayment is tied directly to revenue, providing flexibility and mitigating the risk of fixed monthly payments during slow periods.

Where Are The Opportunities For MCAs Across Brokerage Sectors?

The versatility of MCAs allows you to meet clients’ needs in diverse sectors and match them with the required funds. Here are a few examples of how different brokers could identify opportunities in their current client portfolios.

Commercial Mortgage Brokers

You may find your retail property clients deal with seasonal fluctuations in sales. For these businesses, an MCA can help cover operational expenses during off-peak periods and maintain a steady cash flow.

Clients may also require funding for new projects, expansions or to cover the costs of new inventory. Rather than having to wait for a bank loan to be approved, they can quickly receive the money via an MCA and start work right away.

Asset Finance Brokers

Clients, like fleet hire companies or taxi firms, experience highly variable income streams throughout the year but also incur frequent expenses like vehicle maintenance and fuel expenses, which can create cashflow challenges.

The flexibility of MCA payments, which are tied to sales, means that these businesses are not burdened with fixed payments during their slower periods, but can still cover all of their expenses.

Invoice Finance Brokers

Wholesale businesses often experience delays from their customers, which creates a gap between invoicing and receiving funds. This is a country-wide issue across industries, as half of small businesses in the UK deal with late payments that end up costing them an average of £22,000 a year.

MCAs can bridge the gap that payment delays create, providing immediate working capital to help businesses meet their operational expenses, purchase inventory or continue with expansion plans.

Overcoming Potential Objections and Building Trust

When offering MCAs to your clients, we know there may be some objections at first. To help guide your conversations, here are the answers to some of the most common questions and objections to revenue-based financing.

Do I have to pay interest? 

No, we charge a one-off, transparent fee added to the facility at inception at a factor rate between 1.25-1.35. This will not change throughout the term of the product.

Are there any early repayment charges or penalties?

No, 365 Finance doesn’t penalise customers who want to repay their facility early. The factor rate is determined at the start of the advance and doesn’t change – regardless of when a customer is paying.

What is the maximum term of a 365 Finance Merchant Cash Advance?

Technically, there is no minimum term for our product. However, most of our customers pay back within 9 months.

Is there a minimum monthly payment amount required?

No, 365 Finance does not have any minimum monthly volume requirements.

How do you assess how much money you will lend to a customer?

We determine how much money a customer can borrow based on the average of their monthly card revenue. Typically, we go as high as lending 125% of monthly card turnover.

How quickly can you advance funds?

We know that most small businesses don’t have time to be waiting around for a lender to approve applications, so we try to get funds deposited as quickly as we can. Thanks to our new AI underwriting platform, we can make an offer within 24 hours.

Do you offer top-ups or renewals?

Yes, once a customer has paid 70% of their live advance, we can offer a renewal. 88% of our customers choose to renew with us. 

Customers will always completely repay their current live advance before starting to repay the new renewal. This avoids having to refinance the existing balance, which has already seen a charge, added to the new advance with its own new charge.

When An MCA Isn’t The Right Option

Although an MCA is a great form of funding designed for people who require flexibility, it doesn’t mean it’s always the right solution for your clients.

If your client falls into one or more of the following categories, an MCA might not be the right direction:

1. They require a fixed amount of funds monthly, on a specific day
2. They want an amortising loan over a longer period
3. They want a facility linked to the Bank of England base rate
4. They plan to repay early and would expect a rebate when they do so

Conclusion

Offering a Merchant Cash Advance to your customers is a great way to expand your offerings and provide SMEs with appropriate funding solutions. 

By understanding how MCAs can be applied in various business sectors, and knowing how to deal with some of the common objections your clients may have, you can be an extremely valuable partner to the 5.45 million small businesses in the UK.

If you have any questions about MCAs or how to offer them to your clients, contact a member of our partnerships team today.

At 365 Finance, we provide revenue-based funding of £10,000 to £500,000 in capital so your customers can thrive all year round. We collaborate with thousands of UK brokerages, providing unsecured finance solutions to small businesses – and market-beating commissions for you as an introducer.

To find out more, please contact a member of our partnerships team or head to our website.