Running a franchise offers entrepreneurs the opportunity to operate a proven business model. However, like any business, franchises require capital to grow and build success. Whether it’s purchasing new equipment, managing seasonal cash flow gaps, or funding a growth campaign, franchisees often need an injection in cash to help.
One financing option available to franchisees is a merchant cash advance (MCA). An MCA provides immediate access to working capital, making it an attractive option for franchisees with strong credit card sales.
What is a merchant cash advance?
An MCA is a form of financing where a business receives a lump sum of money upfront in exchange for a percentage of its future credit card sales. Unlike traditional loans, which have fixed monthly payments, MCAs are repaid through a percentage of the franchise’s daily or weekly sales. This makes it a flexible option for businesses with fluctuating revenues, as payments adjust according to the cash flow.
MCAs are popular with businesses that rely heavily on credit and debit card transactions, such as restaurants, fast food outlets and shops. They are often used for short-term financial needs and can be a valuable source of quick funding when traditional loans aren’t feasible or too slow to secure.
How does a merchant cash advance work?
There are some very simple steps for an MCA:
- Application – a franchisee will apply for financing with a specialist lender. The process is typically a quick one as it is less stringent than a traditional business loan and looks at credit card sale history rather than credit score.
- Lump sum – upon approval the franchisee will receive a lump sum of capital which can be used for any business purpose.
- Repayment – the franchisee will need to pay back the cash advance by deducting a percentage of their daily credit card sales. Repayment will continue until the debt is fully paid.
What are the benefits of a merchant cash advance
There are several benefits for a franchisee when using a merchant cash advance:
- Fast access to capital – typically approval and receipt of money takes just a few days.
- Flexible repayment – funding is repaid based on card sales so repayment amounts and times will fluctuate.
- No collateral – an MCA is unsecured so no risk to personal or business assets.
- Easy approval process – decisions are based on the history of credit card transactions.
- No fixed monthly payments – unlike other forms of funding there is no fixed repayment plan.
- No limitations – there are no restrictions on how the funds can be used, an MCA offers complete flexibility.
To summarise, a merchant cash advance can be a valuable tool for franchise businesses who need quick access to funds, without a vigorous and lengthy application process. It is a very versatile funding solution to help manage cash flow and build a growing business.
Should you have any questions or need some help in regard to a merchant cash advance our team of franchise finance experts can help. To find out more please call us on 01993 706403 or e-mail hello@ngifranchisefunding.co.uk.