What is a business cash advance?
A business cash advance, also known as a merchant cash advance, is a type of unsecured business finance. They are generally a short-term and flexible form of borrowing designed to inject working capital into a business quickly.
As a product, it is unlike any other form of business loan and uses your future card receipts and repayments are made automatically through your takings.
How do merchant cash advances work?
In much the same way as a loan, a lump sum is paid into your bank at the start of the agreement. Whereas with a loan, you would make monthly repayments to pay off your loan, a merchant cash advance is repaid daily.
The daily repayments are taken automatically as a percentage of your card terminal receipts. The percentage taken is agreed upfront and is usually between 10-20% of the amount taken.
As the repayments are based on a percentage of takings rather than a set payment, you repay more when card receipts are up and less during quieter times. This can make managing cash flow much easier, especially as you don’t have to find a large lump sum each month.
How could a business cash advance benefit my business?
Business cash advances are used to aid cash flow, purchase stock or fund business growth. If your company needs a capital injection, a merchant cash advance could be ideal. Of course, before proceeding, it’s important that you consider any alternatives – we cover the basics later in this article.
This option can usually be completed quickly, meaning you can react quickly to any unexpected expenses or opportunities. The improvement in cash flow can often lead to an increase in profit for the borrower.
The flexibility offered through business cash advances is often highly beneficial to owners. The usual strain of finance costs during quieter periods is no longer a problem with your agreed repayments always staying in line with cash flow.
You keep all of your non-card income, meaning you don’t have to make any payments on top of the agreed card payments.
How much can I borrow?
Business cash advances are available between £2,500 and £300,000, with the amount depending on your needs and circumstances.
We are usually able to confirm your maximum borrowing capacity within one hour of your initial conversation with one of our business finance experts.
How much will it cost?
Merchant cash advances are generally offered with an agreed repayment amount upfront, for instance, an advance of £20,000 could have an agreed repayment of £24,000. The amount of time taken to repay the money is less clear, with repayments linked to your revenue.
This can make an APR comparison slightly tricky but is counterbalanced by the certainty of cost upfront.
Repayments are generally set as a fixed percentage of revenue through PDQ terminal (card terminal) payments, meaning use of PDQ systems is crucial for raising this type of finance.
How quickly can I draw down funds?
Business cash advances tend to complete very quickly, meaning they are ideal for when your business needs money in a hurry. They are fast becoming a very popular form of finance in the UK, helping thousands of UK businesses already.
Pros and cons
Business Cash Advances are an innovative product and work in a totally different way to most other types of business funding. As such, there are a number of pros and cons to consider before deciding to apply.
- Adverse credit can be considered: Due to the security of the incoming card payments, most lenders will accept some minor adverse credit, as long as your current financial position is strong. Approval rates are much higher than other unsecured business finance products, such as business loans.
- Funds can be raised quickly: Due to a very straightforward application process, successful applications can see the funds hit their bank account in as little as 24 hours. This is far faster than most other types of business borrowing.
- Funding is flexible and can grow with your business: As your card takings increase, so will the credit available to you via a business cash advance. If your business is suffering from growing pains and needs funds quickly, cash advances are ideal.
- Daily repayments tend to be small and easy to manage: TThe repayments are made daily as a set percentage of your card takings, so the payment per day tends to make up a small part of your income. This requires no action from you. The payment is deducted before the money hits your account.
- The total cost of credit is clear: As your agreed total repayment amount is agreed on upfront, calculating how much the advance has cost you is easy to do. This makes weighing up the benefit vs. the cost simple.
- You get to keep 100% of your cash takings: : Any takings that aren’t made via your card terminal aren’t factored into the repayments, meaning you don’t have to give up any of your total income, just your card income.
- Your payments are lower when you need it: If you have a bad day and takings are down, your payment for the day will also be lower as it is a set percentage of your takings. This means you aren’t lumbered with high payments during your quieter periods.
- Comparing costs with other products can be difficult: As business cash advance repayments use a set charge for credit rather than a set interest rate, comparisons with other products can be tricky. Always compare the total cost of both routes, and the likely time taken to repay the merchant cash advance to give yourself a true side by side overview.
- Repayments from daily credit card takings can have affect cash flow: If the majority of your takings are coming from card receipts, your cash flow will be affected during the repayment period. This may be affordable for your business, but you must consider this carefully before borrowing money.
- Difficulty in changing card services supplier: : If you’re looking to change card services supplier before your merchant cash advance, you may be met with resistance by your lender. As they won’t work with every supplier, your options for moving suppliers may be limited.
- Not every lender will work with every PDQ supplier: If your terminal supplier does not currently work with the most suitable lender for your business, you are left having to change supplier or will have to select a new lender. This may mean you won’t secure the best deal and could cost you money.
Do I need a card machine to apply?
Yes, as lenders base their lending decisions on your recent card takings, you must already have a demonstratable track record and a card machine.
If you like the sound of a merchant cash advance but do not have a card machine, you may want to consider business revolving credit facilities or an unsecured business loan.
Can I keep my existing pdq provider?
Yes, you can usually take out an advance without changing your card terminal supplier.
What is the application process?
We take down the required information over the phone, completing any forms with you – although the details required are fairly basic.
From there, we’ll search for the best deal and pair your application with the most suitable lender.
You’ll then receive your lender documents, which detail your finance terms. We’ll explain them to you and answer any questions, before you sign and return them. Once done, your funds will be sent to you.
What if I don’t qualify for a merchant cash advance?
If you don’t qualify for a merchant cash advance, there are a number of products that may be suitable for you, depending on your circumstances.
Is a merchant cash advance the same as a business cash advance?
Yes, both terms are used interchangeably to describe the same business finance product.