Merchant Cash Advances – an alternative SMEs financing
Raising capital for small businesses can be stressful. Until recently, the choice was between the different type of loans offered mostly by traditional banks, complete with the laborious application procedures and anxious days of waiting for an answer. However, an alternative source of capital has become available called Merchant Cash Advances (MCA). These first entered the market in the mid-1990s and in the last few years have grown in popularity.
MCA’s are not loans in the proper sense but are a form of capital investment in return for a percentage share of future generated credit or debit card sales, usually recouped on a daily or weekly basis.
Debitum partner – Loan originator Cubefunder has a proven track record in offering MCAs. In this short article, we look at how MCAs work and their attraction for investors.
How does it work?
The process of applying for a MCA is just as rigorous as applying for a traditional loan. Cubefunder asks applicants to show the most last 90 days of business transactions. There is no need for those overly complicated business plans! Unlike banks, Cubefunder, and other MCA providers, focus on sales and revenue. The process usually takes two days to complete including running a credit check on the business. The efficiency of the process benefits both the MCA provider and the potential loan customer.
What can a MCA be used for?
Cubefunder has a very open approach to all applicants. The MCA can be used for almost any business related activity, including unexpected bills, refurbishment, salaries, replenishing stock etc. Unlike many other loan and MCA providers, Cubefunder will accept applications from businesses that have been operational for less than a year but with at least three months trading activity, businesses that might not have a high credit rating, which can also be due to being a relatively new company, or those previously rejected by a bank.
How much does it cost?
Whereas a traditional bank loan usually has a standard publicised annual interest rate (APR), MCAs have individual rates in addition to the basic cost of the advance (loan). Taking the MCA concept into the non-retail SME sector has enabled Cubefunder to use the MCA principle of paying more when cashflow is strong and less when it is weaker. Cubefunder uses its proprietary software system to price each loan individually with a fixed cost of credit and a pre-agreed tailor-made repayment plan designed to suit the business’s cash flow variances.
How and when are repayments made?
Unlike the traditional loan with a repayment schedule, Cubefunder loans take repayments based on sales. The repayments are usually taken each day or on a weekly basis, and are linked to the business bank accounts the borrower uses. The repayment scheme is very easy – from every sale an agreed percentage goes to lender’s account as shown in the picture below. Repayments are therefore stress and hassle free.
Cubefunder does not impose penalty fees on early repayment and their loans carry a fixed cost of credit, therefore, no additional interest is paid on the loan. Even if there is a missed daily payment, once the amount due within the period agreed is paid, there are no additional costs. While MCA style business loans can actually cost more than traditional loans, they are often seen as more practical in terms of the efficiency of the application process, and once approved, funds are ready to use in a matter of hours. The borrower does not need to have collateral to secure the loan and for businesses with limited assets, this can be a major benefit.
MCAs are attractive for investors, particularly in the short term, and Cubefunder has a proven track record as a successful and diligent loan originator. Investors can currently expect a 10% return with Cubefunder compared to the average 8.5% with other loan originators on the Debitum platform.
Reviews of Cubefunder and its quality of service are positive. Its clients praise its quick and efficient service and that everything is clearly explained. One client specifically mentioned that Cubefunder was a “kind, honest, and accommodating company”.
The Debitum is delighted to work with a client that receives such positive feedback and offers investors an attractive return.