Merchant Cash Advance

A merchant cash advance is a type of unsecured, short term business finance. It is an innovative loan product that uses your card terminal to secure the lending.  It has proven popular with certain sectors such as retail, restaurants an general leisure sectors.  It is designed to help businesses gain access to their cash in a flexible way as repayments are taken as a proportion of your revenue.

The way it works is, the lender will provide you with a sum of money which is paid back in instalments through a percentage of your customer card payments. The amount that is repaid will be agreed with your lender and this will be taken from as a percentage amount from each card payment made. So, the more you sell,  the more you pay back and the faster your loan is cleared. 

The repayments are made automatically so you never see the money for the repayments.

In order to provide businesses with the liquidity they require, merchant cash advances are a form of business financing. Using a card terminal, the firm receives a cash advance from the lender, which it pays back by taking a percentage of its customers’ card payments.

Businesses that use a credit card terminal might benefit from merchant cash advances, which are easier to obtain than other forms of business financing. Enterprises with little or no assets can benefit from a merchant cash advance, as can businesses with a low credit score who need money for expansion.

Simple

The payments come straight from your card machine, so repayments are much more straightforward and efficient.

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Compatible

Frees up other forms of finance- You can get other forms of finance whilst using a merchant cash advance. This can open more opportunity for some businesses.

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Quick Approval

Approvals can be very quick, making it a good option if you have urgent funding problems.

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Flexible

The product has proved popular mainly due to its flexibility. Repayments are both flexible and scalable. Because repayments are made as a percentage of card revenue, they change in proportion to your business’s income, therefore if you are having a tough period financially, then your repayments accounts for this.

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Fast

Applying for a merchant cash advance can be very quick and you do not need to provide a detailed look into your accounts, so if you need cash faster this is a good option.

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Easy

It is a good option if your business does not have many assets but a good amount of card transactions every month.

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Merchant Cash Advance FAQS

How does merchant cash advance work?

When a firm borrows money from a lender, they pay it back by charging customers’ credit and debit cards. The loan can be used in whatever way you need to expand your firm, just like any other form of business financing.

An MCA gives the lender full access into your company’s cash flow because the lender works directly with the terminal provider. As a result, there is no need for credit checks or a thorough examination of your bank accounts, unlike with other types of lending.

With a merchant cash advance, you’ll have more trust in your ability to pay back the loan because it’s tailored to your business’s needs. There are a variety of elements that determine how much you can borrow, including your typical turnover and the amount of money you can reasonably afford to pay back.

Funding Options has a wide range of lenders to choose from, and we can help you choose the ideal one for your business. Start the process of applying for a merchant cash advance by contacting us immediately.

What are the drawbacks?

The amount you borrow depends on your turnover. So, you will only be able to secure an amount of funding if it is in line with your cashflow position.

It only makes repayments based on card machines. If you have a business that received payments in a variety of ways, it probably is not the best option.

 

How much does a Merchant cash advance cost?

With a merchant cash advance, you don’t make regular repayments in the same way as you might for a traditional loan. However, over the course of the repayment term you will typically have to repay between 110% and 150% of the amount borrowed. The key term here is the ‘factor rate’ – with merchant cash advances you’re not normally quoted an interest rate or an APR – so if you have to repay 110%, your advance has a factor rate of 1.1. 

Exactly how much you pay back will depend on your trading history – it’s very difficult to get a cash advance if you’ve been trading for less than one year – the business sector you operate in and the risk the provider believes you represent. However, it’s not uncommon to repay around 120% of the amount borrowed, I.e. a factor rate of 1.2. 

The various fees – such as arrangement fee, broker fee, origination fee and funds transfer fee – could easily add up to around 5% of the loan amount. 

Qualifing questions

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