How do merchant cash advances work?
A merchant cash advance could be ideal for businesses that use card terminals as their main point of sale and they don’t have many assets to offer as security.
When using a merchant cash advance, the lender will work with the terminal provider to monitor what transactions go through.
This will then allow the lender to base what you can borrow off what they see go through your card terminal.
Unlike a normal loan, there is no fixed monthly repayment, interest rate or pay-off date on a merchant cash advance.
Repayments of the loan are usually a percentage of what your business revenue is every month, so they will go up and down with a business’s income.
So, if the business were to have a successful period, they will pay more back, but if they happen to go through a period that isn’t as fruitful, they will pay a smaller amount.
Should the business enter financial difficulty and fail to repay the advance, the owner’s assets won’t be at risk. There is no legal liability with a merchant cash advance and, as repayments are done automatically based on a business’s credit card transactions, there is no possibility of any late charges being applied.
What are the main advantages of merchant cash advances?
Unlike fixed payment finance, this will give you the reassurance that you will be able to make those monthly payments if you have a month where business is slow.
As the lender liaises directly with card terminal provider, the repayments that they take is taken at source in a similar way to how you would pay income tax, meaning that the repayment will never be in your business’s bank account.
The repayments are then taken automatically until the total amount is paid off.
Can I take out other forms of finance alongside it?
As merchant cash advances aren’t traditional lines of finance, you may be able to get other types of finance, if it’s existing or not.
For example, if you already have a piece of machinery on a Hire Purchase agreement, you may be able to get a merchant cash advance to boost your cash flow at the same time.
Are there any disadvantages to merchant cash advances?
Merchant cash advances are usually more expensive than the usual lines of finance.
As they are not technically loans and involve the purchase of future income, advances rarely last for more than a year, meaning funders don’t have to follow usual regulation on interest rates and can charge a little more.
So, how much will I be able to get?
It obviously varies and depends on your turnover as mentioned. But, a rough guideline is to estimate that you will be able to get the same as what your monthly income is – so, for example, if you made £2,000 in a month, then you’ll likely be able to borrow £2,0000.
Also, as this is ideal for those businesses that only take card payments, if you receive payments in other ways then it might not be suited for your business, so if you invoice customers as well then you should look at different finance options.
The number of lenders that offer this source of alternative finance is also relatively limited, depending on your card terminal provider, though there are funders out there that will look at a large range of providers.
If your cash flow situation is in a good place, and you work in a sector that is traditionally difficult to get finance for such as leisure or retail, then a merchant cash advance could be the best way to secure finance with a quick turnaround.
Contact one our expert merchant cash advance specialists on 0333 444 0221 or email us on firstname.lastname@example.org