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…

How Do Merchant Cash Advances Work?

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.

Merchant Cash Advance Pros and Cons

Pros

  • Repayments are automatic and will be an agreed percentage of your card takings. This means that you don’t need to waste time setting up payments, planning large early repayments, calculating cash flow and so on. You won’t ever even see that repayment money, so there’s no way to accidentally spend it!
  • Proportional repayments mean that if you have a very quiet week of sales, less money will be repaid. This is a massive bonus for your cash flow compared to standard loans.
  • Applying and approval for merchant cash advances can be very quick. This makes it a great option for urgent funding problems.
  • Repayments are a percentage of card takings, not overall revenue, so other income channels remain untouched.
  • You know how much you have to repay from the start.

Cons

  • Your card terminal provider can restrict which lenders will see you as eligible.
  • You may struggle to gain approval if only a small portion of your revenue is through card.
  • Repayments tend to be both higher and spread over a small repayment term compared to standard business loans.
  • APR can be difficult to calculate, so it’s hard to accurately compare merchant cash advances to other lending options.

Top 6 Merchant Cash Providers

  • Cash Advance Amount: £5,000 to £200,000.
  • Term: 6 to 10 months is suggested, but this is flexible.
  • Speed of Decision: Under 24 hours.
  • Application process: Complete a simple online form and wait a maximum of 24 hours for a decision.
  • Features:
    • Receive funding within a few days.
    • 90% approval rate.
    • Benefit from a dedicated relationship manager.
    • No hidden fees and no admin fees.
    • Typically between 5% and 17% of sales is repaid.
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.
  • Cash Advance Amount: £3,000 to £150,000.
  • Term: Flexible.
  • Speed of Decision: Same day.
  • Application process: Same day decision and fund are received in a few days.
  • Features:
    • Borrow up to 120% of monthly card volumes.
    • One of the fastest application processes available.
    • Dedicated account manager.
    • 4 months of trading history required.

Nucleus Commercial Finance is offering its merchant cash advance for businesses as young as 4 months. To be eligible, though, a company will need a minimum of £4,200 in monthly card revenue and 10+ card transactions pcm. Furthermore, you must be a property owner if the advance is over £75,000, and businesses registered in Scotland can receive a maximum of £40,000 — not £150,000, like English and Welsh companies.

Nucleus was founded in 2011 and has since lent an impressive £1 billion to UK SMEs. It is a fairly established company, and even though the team is small, it offers a huge loans across its various funding products. There’s some disparity when it comes to the word on the street, though. On the one hand, it was awarded SME Lender of The Year 2018 and Best Invoice Finance Provider 2018, too. On the other, Nucleus has a fair low average Google Reviews rating of only 3.2 stars.

All in all, Nucleus seems to be a valid option for many SMEs, especially for a low risk loan arrangement like this.

  • Cash Advance Amount: £3,500 to £150,000.
  • Term: Flexible.
  • Speed of Decision: Not stated.
  • Application process: Check eligibility in under 90 seconds.
  • Features:
    • Must take over £6,000 per month in card payments.
    • Highly rated on Trustpilot (a score of 4.7).
    • Opportunity to renew.
    • Provides dedicated account managers.

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.

  • Cash Advance Amount: £2,500 to £300,000.
  • Term: Flexible.
  • Speed of Decision: 24 hours.
  • Application process: 5 minutes application and receive a decision the next day.
  • Features:
    • Minimum of £2,500 in monthly card takings required.
    • 9/10 customers actively recommend them.
    • No monthly penalties.

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.

  • Cash Advance Amount: £3,000+.
  • Term: Flexible.
  • Speed of Decision: Within 24 hours.
  • Application process: Boost capital will give you a decision within 24 hours, then you will have access to funds within a few days.
  • Features:
    • Fast approval and fast access to funds.
    • Minimal paperwork.
    • User-friendly website.

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.

  • Cash Advance Amount: £5,000 to £500,000.
  • Term: Flexible.
  • Speed of Decision: 24 hours.
  • Application process: After applying online, a representative will contact you for any extra documents.
  • Features:
    • Advertised factor rate starting from a relatively low 1.15.
    • Get up to 100% of your monthly card turnover.
    • No hidden fees.
    • Transparent repayments.

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.

FAQs

Yes, a card machine is necessary to gain access to a merchant cash advance. A merchant cash advance loan is predicated on card payments (not cash or any other form of sales).
Merchant cash advances are intended to be quick finance. 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.

Some companies may have a preference for limited companies, but almost all lenders offer cash advances to all forms of business structures.

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.

There are a few things you can do to get the cheapest business cash advance. Firstly, you can apply for various quotes (keep in mind that these will not affect your credit rating), and decide which offers cheaper factoring rates. If the rates are not clear, then simply compare the total repayment amount for loans of the same size. Secondly, you can apply after a good spell of card sales (in your ‘hot’ season, of around 3 months). This will signal that you’re in a strong position to make high repayments. Thirdly, sometimes smaller loans will be cheaper than larger loans. So trying to limit the amount you borrow could lead to a cheaper overall cost.

Seasonal Businesses
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.

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