Unlike a traditional loan, a merchant cash advance is an unsecured business loan that can be used to support short-term cash flow for a business. No APR applies, nor are there any hidden costs, but rather an agreement, which typically lasts from 6 months to a year, with repayment based on future customer credit card sales. As repayments are proportional to sales, this form of business funding is now considered one of the most flexible. Payments on debit and credit cards will decrease, resulting in lower repayments. The management of cash flows becomes much easier as a result.
Based on your financial situation, credit score, and trading history, the amount on offer varies between lenders but ranges from £30k to £300k. In case your business generates significant monthly revenue, you’ll be able to get more than that. Cash advances can sometimes be up to 150% of your monthly card sales, depending on the lender’s risk assessment.
Small businesses that need cash within 24 hours are the best candidates for merchant cash advances. Businesses in the UK with a card machine have been trading for at least six months. Transacting at least £10,000 in cards per month (card transactions). As with most short-term business loans, merchant cash advances can be used however you like, if the funds are used for business purposes only.
A cash advance requires you to have been doing business in the UK for at least three months, although this can vary by lender. It is important to have an idea of the amount of funding you need, as well as the following information:
- Status of your business (sole proprietor, ltd…)
- When did you start your business?
- Card turnover on average per month.
- Name of the business.
You can find a lender that meets your business’s unique requirements through a lending marketplace like Funding Options. Your business may not qualify for a merchant cash advance with a high street bank if it has bad credit. However, if you have a solid business plan, you may qualify for a merchant cash advance.
You must be registered as a sole trader, partnership, or private limited company in the United Kingdom to apply for a merchant cash advance. In addition, you need to process card transactions regularly, either through a payment gateway provider or through a point-of-sale device provided by card machine providers. Lenders are more likely to approve your cash advance request if they are satisfied that you can repay it within a year.
Benefits of merchant cash advance for small businesses
Getting cash quickly
Quick access to funding is one of the major benefits of merchant cash advances. A merchant cash advance takes as little as a few hours or a couple of days to receive, unlike traditional bank loans, which can take weeks to approve. Credit card receipts are the most common method lenders use to determine your ability to repay the loan. In comparison with other methods of funding, merchant cash advances have a very high approval rate.
A merchant cash advance differs from a conventional business loan in that instead of an outstanding loan amount, interest rate, and term, the lender receives a discount on future sales. You pay back a percentage of the card payments you receive from your customers; your card payment services will be proportional to your terminal activity.
A seasonal business, for example, may benefit from this method, since you can repay more when you have a season. Because your payments increase when you have more customers and generate more profits, you might consider the advance a perfect match for your business. When you accept a payment, the lender typically takes a percentage. Depending on the volume of payments you are processing through the card terminal, you can also clear the advance more quickly, thereby reducing your interest costs. A sunset clause can be inserted into the agreement, setting a future date for the advance to be repaid, depending on the lender.
Does not need a high credit score
There are also merchant cash advance companies that are willing to work with small business owners with low credit scores. A company’s credit card transactions through a card machine are what matters most. You need to prove to the lender that you have enough sales through the card terminal provided by card machine providers every day or every month since the lender takes a percentage of the sale.
There is no collateral requirement
In most business financing options, you must provide collateral, which is typically an asset that the lender can seize when you default on your payments. The advantage of a merchant cash advance is that you don’t need collateral to back up your financing.
It is up to you how you use the merchant cash advance
Money lenders will not ask to specify how the merchant will spend merchant cash advances. The money merchant spends should go towards things that will benefit his business and increase profits and performance. Using it as a cash flow injection, buying equipment, decorating your premises, or hiring more staff is all possible.
Low interest rates
Your interest rate will depend on several factors, such as how much money you get, how long you’ll pay it back, and how risky your business appears to the money lenders. It may be possible to shop around for a better deal if you have either just ended your contract with your lender or are nearing the end of your renegotiation process.
Merchant cash advances work alongside other funding streams
The merchant cash advance can be extremely helpful if you already have fixed-term loans arranged with a bank or credit facilities, but your business needs more credit. Consider merchant cash advances as a line of credit that you can use in conjunction with other funding sources. Furthermore, if your only loan is a merchant cash advance, and you’ve managed it well, another lender may be willing to lend to you if you demonstrate your ability to manage repayments.
Establish a credit history
Being a new business can be challenging, especially when it comes to securing credit. Having already partnered with a payment provider, you will have been subject to some checks. By taking a merchant cash advance, you can further enhance your business’s credit rating. In the future, potential lenders may look at your credit file before making a lending decision if you want a substantial loan on better terms.
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