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Merchant cash advances are one way to inject working capital into your business — but is this the best approach for you? Let’s find out.
Merchant cash advance is a type of business funding based on credit card sales deposited to a business’s merchant account.
It helps businesses gain quick access to cash when they need it by applying for a merchant cash advance. The business pays back this cash advance to the lender via percentage of their customers’ credit or debit card payments.
Merchant cash advances are useful to various businesses with card terminals who have very little assets or low credit score because they are easier to obtain than some other types of business financing.
Merchant cash advances are a type of unsecured, short term business finance. They differ slightly to a standard loan in that repayments are taken from a portion of your future (daily) card sales. These repayments are both daily and automatic — you never see the money for the repayments, nor do you execute the repayments manually.
So how do you pay? To start, you will agree a set amount (%) to be taken from each card payment. As a result, the size and duration of the repayments will depend on your future card revenue: the more you sell, the more you pay back, the faster the loan is cleared. This means there is no set repayment term and that calculating the interest rate for borrowing will be difficult. This can also make it difficult to forecast your future cash flow, but equally, your repayments are reduced in slow sales periods.
As you’d expect, this flexible finance doesn’t come for free. A merchant cash advance provider will charge you what is known as a ‘factor rate’. Typically, this is between 1.1 and 1.5. If you agree a factor rate of 1.15, and borrow £10,000, you’ll need to pay back £11,500. Many providers propose a factor rate upon application, so always make sure you fully understand what you will owe.
You can find a more comprehensive guide to merchant cash advances here.
The table below shows the main differences between a traditional business bank loan and merchant cash advance lending.
Merchant Account Providers
One clear, all-inclusive fee for duration of the merchant cash advance. No admin charges. No interest. No late fees.
Interest charged according to length of time loan is outstanding. Admin charges and late fees payable.
Flexible monthly repayments?
Business Plan Required
Speed Of Approval
1 – 3 days
Approval normally takes weeks
Speed of Funding
Within 48 hours
Funding usually takes weeks
Merchant cash advances are intended to be quick and you can have the funds in your account 5 working days after an application. In fact, that’s why the eligibility requirements are low across the board – this is a fast, alternative (and often more costly) method to traditional business loans.
Cash advance lenders therefore focus on speed as a key selling point, and most lenders will provide you with the funds within a couple of days after applying.
Most lenders try and work around your current business set-up, meaning in most scenarios you won’t need to change your existing card machine provider. This isn’t always the case though, and so it needs to be checked at the time of applying. Lenders such as Boost Capital accept all card types, too.
Usually, merchant cash advance providers will not require the funds to be spent anywhere in particular. Funding for a specific purpose is usually for larger and more traditional lending methods. It’s always worth asking, though.
Yes, credit will not typically stand in your way of a merchant cash advance. The reason for this is that, whilst the loan is unsecured, it is somewhat secured regarding the automation aspect. Lenders know that so long as you have card sales, they get their money. It shares resemblances to the PAYE tax system, in which you never see that money. Thus, lenders are more concerned about your future card sales than they are about your credit score.
Some companies offer future top ups, and some do not. Merchant Money is one example of a lender that, after 4 months of gaining access to the loan, offer the potential for a top up (extra financing). If you plan to top up, it’s worth bearing in mind that your cash advance provider will take into account how you have been performing since taking the loan.
In short: until the loan is fully repaid. This is the downside of cash advances — you cannot fully predict when it will be paid off, because you cannot entirely predict your card sales. Equally, it is also the main benefit. The repayment term fits around your situation, and how well your sales are doing.
No. Personal guarantees are not necessary with the leading lenders in this financing market space. The reasons for this is similar to the reasons why credit isn’t important — it’s all about revenue.
Businesses with fluctuating sales revenue can make the best use of merchant cash advances. A prime example of this is seasonal businesses, where sales may depend entirely on the time of year (e.g. pop-up Christmas store company). The financing can be extremely useful to ensure you can cover your fixed costs during the slow seasons, such as maintaining your website.
Another reason why these companies are so well suited is that they may get a good rate and a good loan amount, compared to the reality of their business in an annual context. Many cash advance lenders will take only assess a handful of previous months’ sales revenue. This could lead to a disproportionately high result in their hot season, meaning they can land a great financing deal just in time for their slow season.
Struggling Cash Flow
When applying for traditional forms of business financing, you will often have to prove that your cash flow is sufficient to cover the repayments. With a traditional bank loan, profit is important but cash is king. With cash advances, neither of these carry much weight. Struggling cash flow doesn’t get in the way of gaining approval, and in fact, it is the number one reason why a business might seek it in the first place.
Adverse Credit History
Usually, a company’s ability to gain financing depends on its creditworthiness. This is why cash advances are a useful alternative for those who have a poor credit rating — most lenders will not even perform a credit check.
YouLend are a lending platform offering quick financing to SMES. Our mission is to provide our clients with a healthy alternative to traditional banking products.
They merged with Liquid Finance Partners in 2018 and are backed by a select group of highly experienced private and institutional investors.
They just focus on merchant cash advances and loan advances (an unsecured amortising loan with a fixed maturity date. The loan is repaid through either an amount equating to an agreed fixed percentage of the merchant’s card takings or a weekly minimum amount (whichever is greater of the two). Their application and credit assessment process is 100% online.
You can pay down your merchant advance at any point in time without incurring extra fees, costs or penalties and they have an online platform where you can monitor and renew your lending.
365 Business Finance is a UK-based company that focuses on providing finance to small businesses. Among its many different financial products, merchant cash advances are one of its best. With only 6 months trading history required and a 90% approval rate, 365 Business Finance is accessible for a great number of businesses. One thing to note, though: if your monthly card sales don’t currently exceed £5,000, you’ll need to speak to a representative before being approved.
Business owners will be pleased to learn that no business plans or security is required upon sign-up and there are no extra fees, such as administration costs or APR. The process at 365 Business Finance is very automated, like most other providers. Repayments are taken daily and stop automatically when the loan has been fully repaid. You can also benefit from a dedicated relationship manager, who is there to support you through any issues.
Capify was founded in 2008 during the financial crisis. Its aim was to help small UK businesses overcome this credit crunch, and so it became one of the first business loan companies to offer UK firms a merchant cash advance. Capify, unlike many others on this list, actually specialise in merchant cash advances with it being its main financial product.
Problem is, Capify’s website isn’t the most forthcoming with its information. But take a look elsewhere online, and you’ll see it is a trusted lender that helps many UK businesses and has the customer review scores to match. In fact, Capify’s biggest asset is its helpful customer service, in which you can benefit from a dedicated account manager and the opportunity to renew your cash advance. Like with most other cash advance providers, payments are automatic and daily so that it dampens its impact on cash flow, with it being a “flexible financing option”.
The biggest drawback is that not only is 6 months of trading history required for the merchant cash advance at Capify, but you must take at least £6,000 in monthly card payments — a higher eligibility standard than most other providers.
Since 2008, Liberis have lent over £340 million to UK companies. Whilst this isn’t as much as some of the others, it reflects its focus on fast, small loans to small enterprises — though it doesn’t shy away from having a £300,000 limit on its cash advances. Liberis excels in its customer friendly approach to the website, in which it displays easily digestible facts and benefits of its services. Always a good thing, when you’re trying to get your head around alternative business funding options!
Liberis approves 70% of applications, probably because to be eligible a business must only turnover a modest £2,500 per month on its card terminal and have been trading for more than 4 months. Liberis is adamant that you will encounter zero unexpected fees or costs and that a very high percentage of their customers actively recommended them. With a 4.4 Trustpilot rating and an extremely fast application process, Liberis seems to offer fantastic service. This is extremely important for SMEs who are looking for urgent money, but have a less-than-perfect credit score.
Boost Capital was founded in 2002 (a long time ago for an alternative loan lender), and has since funded over 22,000 businesses. In order to qualify for Boost Capital’s merchant cash advance, you must have a minimum monthly turnover of £6,000 and a minimum of £3,000 in monthly card sales. This is roughly in-line with the market average.
Whilst there are external reports of Boost Capital offering cash advances of up to £500,000, it doesn’t explicitly say this, so it is best to get a quote yourself. Furthermore, the amount of funds on offer is very dependent on both your card sales and monthly turnover.
Boost Capital have a fantastic user-friendly website in which its FAQ outlines answers to many important questions around its cash advance. If you’re new to cash advance funding, and have a lot of unanswered questions, Boost Capital could definitely help you out.
Merchant Money is a slightly newer provider, having been founded in 2013. Merchant Money claim that technology is its enabler, and that technology-driven risk assessment has led to its revolutionary approach to lending.
Merchant Money is also a highly rated and reliable lender, offering the potential of very large amounts of capital (£500,000). More impressively, funding of up to 100% of average monthly card sales is on offer as a cash advance at Merchant Money. This is a big promise, and Merchant Money doesn’t seem to ask much in return; in order to qualify, your business must have a minimum of 6 months trading history and a minimum of £5,000 in monthly card sales.
What’s more, Merchant Money offers transparent and clear repayments with no hidden fees. The repayment costs are reasonable, competitive and entirely agreed upfront. A great additional feature of the Merchant Money cash advance is that it can be topped up after 4 months, meaning the financing doesn’t have to be a one-time, carefully planned injection — it can be increased before it’s fully repaid.
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