Funding Bay Blog

How to Use a Merchant Cash Advance

You might have heard the term merchant cash advance without really knowing what it is, or how to utilise it for your business. Well, when it comes to financing your business, a merchant cash advance is one of the most innovative options. They are designed to work around those businesses which have a large proportion of card transactions each month, providing them with a better cash flow in exchange for a sum of the revenue.

Interested in learning how to use one? Let’s take a quick look at how the system works.

How Does it Work?

So, the merchant cash advance is a type of business finding which gives you access to cash in a flexible manner. Basically, you get a considerable amount of cash all at once from a lender. The lender will give you the money, and in return, they want a percentage of all card payments your customers make, which is how you repay the loan.

This specific type of option is good for anyone who is searching for a type of finance more accessible than some of the traditional variations. If your business has little to no assets, or you require access to capital in order to grow but have a very small credit history, this is definitely the resource for you. Because the repayments are only taken as a proportion of the card revenue each month, you get a very quick and easy way to fund your business.

Which Industries Use It?

There are quite a few different industries to benefit from the use of a merchant cash advance. Obviously, these are industries that have a high proportion of card payments over time, so let’s look at some examples:

  • Retail. Your typical retail store often has a merchant cash advance solution available during the off-seasons. After all, the end goal is to try and be financially secure even during quiet periods, and so this money can be used for things like stock increases, new staff, and other resources which will only serve to aid the economic growth and renewal of the business.
  • Restaurants. A lot of people will use their card to make payments in eating establishments – this makes them a prime candidate for the idea of a merchant cash advance. With access to plenty of resources and an easy use of the system, a restaurant is a good opportunity for a cash advance.
  • Hotels. Your typical hotel is one which will frequently take card payments – either through an online booking system or in person. In both cases, an online payment. This makes them a highly viable target for the merchant cash advance, because they can easily repay the loan that they have been given against card payments taken.

Great For Reopening

Businesses looking to reopen after lockdown may particularly benefit from a merchant cash advance as they allow you access to a large sum of cash flow which will sponsor your business to get back on its feet following the harsh months of the pandemic.

Hotels, retail stores, and restaurants could all benefit from the merchant cash advance. While it is true that some of the running costs and wages of staff are paid for by government schemes, this caps out at 75%. Ultimately, this is not enough to retain the same number of staff that were previously employed or to have the same resources. The merchant cash advance would enable any business to begin from a position of strength. This would be advantageous if trying to rebuild a functional, profitable enterprise.

Final Thoughts

The true strength of the merchant cash advance lies in its repayment option. Being able to repay only a percentage of card payments means that businesses can continue to retain cash-based assets. This allows them to purchase stock, or train new staff, or simply to resume trading from a strong position.

To access a merchant cash advance, get in contact with Funding Bay. Our team will be able to find the lender best suited for your business. Lenders on our roster who specialise in merchant cash advances include Merchant Money, 365 Business Finance, and Nucleus.

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