Merchant cash advance

Are you looking for a business loan that is fast, straightforward with affordable daily repayments?  

A Merchant Cash Advance, also known as Business Cash Advance, is a new unsecured alternative business loan. It is a short-term cash loan between £3,000 and £300,000 that can support your cash flow and immediate business needs.  

No need to prove your APR and there are no hidden costs. You are only required to agree on the payment terms, which typically happens over 6 to 9 months.  

The loan option is becoming a popular funding solution in the UK for small business and SME’s. The government expressed its appreciation in this innovation as an alternative funding option for UK businesses.  

What is a merchant cash advance?

One of the most innovative products in alternative business finance. The concept is new and has existed for only a few years. However, the platform has already become popular among retail businesses and the leisure sector 

The  cash advance platform uses a card terminal to ‘secure’ lending. The procedure becomes perfect for companies that have low assets. The proportion of the revenue of the business will be the basis of the repayment. The idea is making it a quick and easy funding solution for many SMEs 

How does business cash advances work?

The concept is that Merchant cash advances will provide funds to small business owners while in exchange for a percentage of the income (usually credit card transactions) over time.  

Usually, the payments are made daily using a percentage of the business’s daily credit card income. Then, the total amount to be paid is calculated by a “factor rate,” which is a multiplier based on a business’s financial performance. 

For example, Rean owns a coffee shop business in London and has an important event to happen in a week that will help make or break her business. However, the recent storm leads Rean’s coffee supplier to unable to deliver. With this, she needs to find another supplier who can provide her order for three times the reasonable price.  

Rean’s business accounts do not have enough balance to pay for the price increase. Further she does not qualify for another small business loan. She decides to apply for a merchant cash advance of £100,000 with a factor fee of 1.25%. The terms of the merchant cash advancRean will repay the loan with 10% of her daily credit card for up to 12 months. 

Rean would be paying a total of £125,000 (£00,000 principal x 1.25factor rate) at the end of 12 months. Rean would need to spend, on average slightly less than £350 a day (£125,000 ÷ 365 days). It would be equal to 10% of her daily credit card income, meaning Rean should earn an average of £3,500 per day in credit card sales. Rean could potentially pay off the advance soon if her regular credit card income is higher than usual, but she would still have to pay the full amount of £125,000

The benefits of business cash advances

Flexible and scalable 

Typically, the percentage of revenue is the basis of repayments. The figure goes up and down, proportionally with your business’ income. It means that when business is going well, you pay more back each month. However, if the company is going through a lean period and challenges, you’ll pay a smaller amount.  

Therefore, it becomes a right arrangement for your business because unlike fixed payment finance, you can have more assurance that you’ll be able to make payments if you hit some challenges along with the business operations.  

Easy repayment scheme 

Another benefit of this platform is that repayments are relatively painless. The lender works directly with the card terminal provider. The percentage they take for repayments is never in your business’s bank account, but instead is ‘taken at source.’ 

Unlike other options of finance, the payment is taken automatically until the payment term is complete. It is a ‘hands-off’ setup from the business owner. It means that you can spend less time worrying about finances, and more time operating your business and reaching more market. 

Open opportunity for other forms of financing 

You can open a new line of credit for different financing options. If a business pays well, it is possible that you get other types of loan for your business even if you still have an on-going merchant cash advance agreement.  

Criteria for  merchant Cash Advances

To qualify for the loan platform is relatively easy. Most providers offer a secure online application with quick feedback. Unlike traditional business loans, applicants do not need to prove multiple years of business operations to qualify.  

One factor that the lender will look into is if the business has had a consistently high sales volume. Most of the credit providers will only advance 75%-250% of a business’s monthly sales volume. 

Small business owners intend to apply should prepare official photo identification, business tax returns, bank account statements, credit card statements, and credit check authorization.