MERCHANT CASH ADVANCE
Merchant Cash Advance
A merchant cash advance, also known as a Business Cash Advance, is a short term, unsecured advance that is lent against your businesses future credit and debit card sales. Depending on your card takings, you can borrow from £5,000 to £500,000.
Unlike an unsecured business loan, there are no fixed payments, instead money is paid back as a percentage of card machine sales processed.
This means the repayment schedule reflects the cashflows of the business. The more card payments processed, the quicker the advance is paid and vice versa.
How does it work?
Any business that uses a card terminal is eligible for a Merchant Cash Advance. The amount you can borrow will depend on the lender and sector of business you are in, but 1 X average monthly card revenue is the industry standard.
The lender works with the card terminal provider to enable them to see transactions being processed; for each card payment you take, a small percentage is withheld to repay the advance. This is known as a ’sweep’ or ‘holdback’.
This means in quieter periods, when you need the cash the most, repayments are lower, and when business picks up, the repayment to the advance accelerates. In short, the Merchant Cash Advance provider only gets paid when you do.
You receive your card receipts the same way, no delays, no obstructions – the deductions are automatically taken so there is no repayment for you to worry about.
The advance is unsecured, albeit a Personal Guarantee will be required. Applications are quick, and funding fast – typically within 48 hours.
A merchant cash advance, also known as a Business Cash Advance, is a short term, unsecured advance that is lent against your businesses future credit and debit card sales. Depending on your card takings, you can borrow from £5,000 to £500,000.
Unlike an unsecured business loan, there are no fixed payments, instead money is paid back as a percentage of card machine sales processed.
This means the repayment schedule reflects the cashflows of the business. The more card payments processed, the quicker the advance is paid and vice versa.
Frequently Asked Questions
How much can I borrow?
Providers vary, but you can borrow anywhere from £5,000 - £500,000.
Am I eligible for a Merchant Cash Advance?
If you accept card payments from your customers, either in person or on-line, then the chances are you are eligible.
How long do I need to have traded for?
Providers vary, 6 months is typically the minimum time you need to have been trading, but some providers will consider businesses that have been trading for just 3 months.
How do I make repayments?
You do not make repayments. The lender will retain an agreed percentage, typically 10 - 20%, of your daily card revenue. No payments are taken from your bank account. This retention is commonly known as a sweep.
Will I receive my card takings later?
No. You will receive your daily receipts in the same way, albeit the reference on your bank statement for card deposits may change.
What interest do I pay?
No interest is payable. A fixed fee of funding is payable instead, known as the Factor Rate.
What are the set-up costs?
There are no set-up costs to pay. The cost of the loan is all calculated in the factor rate.
What is a factor rate?
A factor rate is how much the loan will cost you, or the total sum you will repay will be shown as a factor rate rather than being done using an interest rate percentage. For example. A factor rate of 1.3 would mean if you borrowed £10,000, that number is multiplied by the factor rate to show the total amount repayable. So, £10,000 X 1.3 = £13,000 so the cost of the fixed cost of the loan is £3,000.
What security is needed?
A personal guarantee is likely to be required
My credit score is poor – will I still be considered?
Yes, as the money is taken at source by the card payment processor there is limited risk for the lender. As long as you are receiving regular card payments you are likely to be accepted.
Can I repay early?
Whilst you can repay early, you will still have to pay the full cost of borrowing so this facility may not be an ideal option if you think repaying early is likely.
Can I borrow more?
Top-ups are available from lenders. Any business that uses a card terminal is eligible for a Merchant Cash Advance. The amount you can borrow will depend on the lender and sector of business you are in, but 1 X average monthly card revenue is the industry standard.