Merchant cash advances

Merchant cash advances are one of the most innovative products in alternative business finance. Merchant cash advances let businesses use a card terminal to 'secure' lending — perfect for those who don’t have assets, but who do have a good volume of card transactions.

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What is a merchant cash advance?

A merchant cash advance is a type of business funding designed to help businesses gain access to the cash they need in a flexible way. The lender provides the business with a cash advance which it pays back through a percentage of its customers’ card payments using a card terminal.

Merchant cash advances are suitable for a wide range of businesses that use a card terminal and can be easier to access than other forms of business finance. A merchant cash advance is a useful funding solution for businesses with no or very little assets, as well as those who need capital for growth but have a limited credit score.

How does a merchant cash advance work?

 A merchant cash advance works by the business (or ‘merchant’) borrowing a sum of money from the lender then paying it back through customer card payments. As with other types of business finance, you can use the loan any way you need to grow your business.

With a merchant cash advance, the lender works with the terminal provider directly so they have visibility on how much money is flowing through your business. That means that unlike other types of lending, there’s no need for credit checks or a detailed look into your bank accounts.

A merchant cash advance adapts to your business and how much money it makes, giving you more confidence when it comes to affording the repayments. How much you can actually borrow will depend on a number of factors, including your average turnover and how much you can viably afford to repay in the eyes of the lender. 

Here at Funding Options, we have a variety of merchant cash advance lenders and can help you choose the right lender for your business needs. Speak to our team today and start your application for a merchant cash advance.

Can I get a merchant cash advance?

If you own a business that uses a card terminal to take payments from customers, you’ll be able to apply for a merchant cash advance.

Any business that receives payment via a card terminal can get a merchant cash advance. As the lender can quickly see what the business makes over an average month, they can agree on a loan amount and a repayment plan much faster than with other options — so it can be a great solution for businesses that don’t have valuable assets, or need cash fast.

What are the benefits of merchant cash advances?

Flexible and scalable finance

Usually, repayments are made as a percentage of revenue so they fluctuate with your business’s income. That means when things are going well, you pay more back each month, but if the business is going through a lean period you’ll pay a smaller amount. It’s a good arrangement for many companies because, unlike fixed payment finance, you can have more reassurance that you’ll be able to make payments if you hit a bump in the road.

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Easy repayments

Repayments for merchant cash advances are relatively painless as the lender works directly with the card terminal provider. The percentage they take for repayments is never in your business’s bank account, but instead is ‘taken at source’ — in much the same way that most people pay income tax.

Unlike other types of finance, the money is taken automatically until the debt is paid, so it’s a ‘hands-off’ setup from the point of view of the business owner. That means you can spend less time worrying about finances, and more time running your business.

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Frees up other forms of finance

Another benefit of a merchant cash advance is that it effectively opens a new line of credit. Your business can use other types of finance at the same time as a merchant cash advance, which can be useful for lots of businesses. For example, if you have an equipment lease already, it’s possible to get a merchant cash advance for more general cash flow at the same time.

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Merchant cash advances have lots of benefits, but there are some drawbacks to consider too such as higher fees and the amount your business can borrow as it depends on turnover.

It's limited by cash flow

If you want to borrow £5,000 but your business makes £1,000 per month, your business is unlikely to secure that level of lending as it’s not in line with your cash flow position. You’re generally able to get finance equivalent to what your business receives in an average month — so for the example above, £1,000 is a much more realistic figure.

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Not suitable for multiple payment businesses

If your business receives payment in a variety of different ways, merchant cash may not be a perfect solution. It’s best-suited to businesses that do the majority of their business via a card terminal.

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Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

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Lenders are specific with terminals

Another point to consider is that many lenders only work with specific terminal providers, which means your choice might be limited depending on the provider you currently use. There are some lenders who do work with a wide range of terminal providers and our team can talk you through your options to find the one that suits you best.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

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Is a merchant cash advance good for my business?

Merchant cash advances can help your business access funding very quickly; in some cases, a decision is made within just 24 hours. This makes it potentially suitable for business owners who need quick access to cash and can’t afford to wait weeks for a lender to come to a decision. 

The application process can be relatively pain-free too, with minimal paperwork required.  You’ll usually not have to offer collateral, meaning your assets - such as a car, property and equipment - won’t be at risk like they would be when it comes to other forms of business finance. 

The automatic repaying of the loan through card payments eliminates the chance of late loan repayment charges, and there’s no minimum payment. The more you earn, the quicker the loan will be paid off in full - and vice versa. 

With a traditional business loan, repayments stay the same every month which means they run the risk of becoming unaffordable during quieter trading times. With a merchant cash advance, you know exactly how much you have to repay, as the cost is transparent from the beginning. 

Merchant cash advances are just one option of many business finance solutions out there. It could be that another product - such as asset finance, a short-term business loan, or a revolving credit facility, are more appropriate for your needs.