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.
Merchant Cash Advance FAQS
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 which received payments in a variety of ways, it probably is not the best option.
How Much Does It Cost?
Because the repayment schedule is based upon the activity of your card revenue, there is no set repayment term, so calculating the interest rate for borrowing is difficult. But the merchant cash advance lender will charge you a ‘factor rate’, this is typically between 1.1 to 1.5%.