What Is A Merchant Cash Advance?
A merchant cash advance is a financing solution designed to help businesses, namely small to medium ones just like yours.
It is not unusual for new businesses to struggle with cash flow, so it's important that there is a financing option that can help them out with the money they need.
And with over 99% of businesses in the private sector being small businesses, chances are that this is a much-needed financing solution. It's essential to point out that this is not a loan - like the name suggests, it is merely an advance, with some specific repayment arrangements. Receive between £5,000 - £200,000 in as little as 48 hours.
An Example Scenario Of How It All Works:
Let's take a practical example and explain the process. Say you have a small business, like a coffee shop. You're just starting out, so cash flow isn't amazing just yet, but in order to improve and grow your business, you need to invest in a new, state-of-the-art coffee machine. That's not something you can afford right now, but it's essential to the business, and it'll pay off in the long run. Read More »
You don't really want to take out a personal loan, because your credit isn't excellent and you don't feel like paying interest. But you don't qualify for a business loan either. So, what do you do?
Luckily, everyone pays by card these days, so you get a lot of daily transactions. You can easily get a merchant cash advance with zero interest based on the income you make from credit card payments from your clients. The amount you receive is based on how much you make and can affordably repay and can be between £5,000 and £200,000.
The repayments are then taken exclusively from this income, and you don't pay it all at once. Instead, it is repaid automatically as a small daily percentage of what you make from credit card and debit card payments. This way, you can pay for your coffee machine upfront and then pay it off from the sales it helps generate, so it more than pays for itself. And all this with zero paperwork!
Secured loans offer much larger amounts of money, but they are best suited to those wanting to make big purchases, such as property or land. There's also a very risky catch with secured finance - you could lose your home. The loan is secured against your personal assets (your property, car or even your business). If you default or fail to repay, the lender is within their rights to sell your assets to recover the debt. Hence unsecured cash advances are far safer forms of accessing business funding! « Show Less
The process is simple and straightforward:
Decide how much you want to borrow and submit an online application.
The lender will review your credit report to help come to a decision. Providing that you have a good credit history you’ll receive a decision in minutes.
Agree on a repayment plan upfront with the lender. Typically, you can choose to spread the cost over 4 – 18 months.
Once you’re happy with everything and you’ve accepted the offer, the lender will transfer the funds direct to your account.
There you have it - money in minutes with no risk to your home!
Watch Our Video To See How It Works
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Getting Approved How To Get A Merchant Cash Advance
- Own a small business
- Make at least £5,000 a month through customer card transactions
- Be over 18 years old
- Be a UK resident
- Be in operation for 6 months minimum
What Do I Need To Apply?
- To apply, you fill out an online application form, just like you would with a typical loan, but with zero paperwork! It's just one quick form, and you're done.
- The information you provide should include your business tax ID and other assorted info about your business.
- In terms of documents, you need to give credit card data from the last few months, payment processing data, bank statements, etc.
Top Tip: Always take the time to read reviews about the lender before you sign a contract - they will often confirm or dispute whether a lender is trustworthy or not. So, take advantage of other people's experiences to ensure that you make the right choice.
2. Who’s Eligible?
There are a few requirements you have to meet in order to be eligible for a merchant cash advance, but the most important is that you need to consistently make a certain amount of money from credit card and debit card sales each month - around £5,000 minimum. Please note that this figure may vary slightly depending on the lending company you choose. Read More »
You need to make a certain level of revenue through card transaction as this is exactly where you're going to be paying the money back from. This also explains why the lender needs to take a look at your bank statements and long-term credit card data, so that they can have an idea of how much you stand to make and thus, how much you are able to repay. « Show Less
What's The Cost? Can You Afford A Merchant Cash Advance?
Like any dilligent business owner, the information you're most eager to know, is most likely the cost. In this section we'll give you all the facts and figures surrounding a cash advance, from receiving the money to making repayments, so that you can make a well-informed financial decision on whether this is right for you.
How Much Could You Receive?
The amount you are granted depends on on the lender, as well as your business. You can receive between £5,000 to £200,000, but this depends on the projected income of your business. Generally you can expect to receive, more or less, 85% to 90% of the sum you apply for. Read More »
Because the amount that you are offered is personalised and specific to your business' needs, no two businesses will receive the same deal or contract. Again, it is all highly dependent on your particular business and financial situation. « Show Less
How Much Will You Need To Repay?
As far as the repayment amount is concerned, you will be expected to repay the entire amount borrowed, plus one, all-inclusive fee.
To do this you will need to repay a small percentage of your customer card sales each day. Usually this percentage will be between 5% to 17% of your daily income from credit card and debit card purchases. If you compare it to other business loans, it actually works out less expensive than average interest rates, especially if you are looking to borrow with bad credit.
Caution: If you need money to start up your business, then you should be looking for a different financing solution. A business advance is not a start-up loan, do not confuse the two!
Are There Any Additional Fees?
No. The advantage of merchant cash advances is that there is no interest charged on the amount you borrow, and there are zero addtional fees or hidden charges imposed. You borrow just one amount and equally have just one clear cost to repay. Simple. Read More »
One concern, with a lot of lenders and financing options, is whether you will discover that you need to pay any extra fees later down the line. The majority of financing options will have an interest rate that you need to pay, which means that you will always end up repaying a larger sum than that which you borrowed. This can be extremely expensive, so in this regard, an advance is an innovative and cost-effective way of obtaining additional business funding. « Show Less
What Are The Pros & Cons? The Benefits & Drawbacks Of Alternative Business Funding
All financial products have potential benefits and drawbacks, so before making a decision you should always explore both sides thoroughly. In this section, we'll do that for you. We've consolidated all of the main pros and cons of cash advances below, so that you can make the best decision for your business.
What Are The Positives?
1. You Only Repay A Fixed Percentage Of Your Earnings
Perhaps the biggest advantage merchant cash advances bring is that you do not need to actually repay in fixed regular installments. Instead, you get to repay a small percentage of your card sales every single day.
This is advantageous for a few reasons, the first of which is that you can never find yourself in a position where you cannot afford to repay your loan. It's practically guaranteed affordability. Read More »
Since the amount is entirely dependent on how much you make and the percentage is constant, you will make smaller repayments when sales are low and bigger repayments when sales are high. In addition, the payments are withdrawn automatically from your account every single say, which means you don't have the stress of paying the amount every single time. « Show Less
2. You Do Not Need Collateral
The other major benefit is that this loan does not need to be secured by any kind of asset put up as collateral. The amount you are able to borrow is based on your projected income and comes out of that income, periodically.
You are not putting anything at risk, such as your car or your home, and it's much easier to fit this sort of repayment in your budget. You don't have to make a financial effort to repay the amount, since it's based on your own sales and the percentage is the same day in, day out.
Expert Advice: You can find detailed instructions for spotting excessive costs and hidden fees from the Money Advice Service.
3. You Don't Need An Exceptional Credit Rating To Qualify
Surprisingly, you don't need the best credit rating to qualify. As you already know by now, you can certainly get a merchant cash advance with bad credit - yes, still without needing collateral.
Businesses that are just starting out often don't have a great rating, and this can make it more difficult for them to secure financial help. That's exactly why this option is so valuable and important. Read More »
It is made possible by the fact that the payment is taken out automatically every day, meaning that the borrower cannot refuse to pay or default on the loan. This offers a type of security for the lender that will forgo the outcome of your credit check. « Show Less
What Are The Potential Drawbacks?
1. You Need To Have A Minimum Card Sales Quota
As you know, in order to qualify for this sort of financing, you need to make a minimum amount in credit card and debit card sales. £5,000 may not seem much, but when it has to be made exclusively from card sales and your business is small and/or just starting out, that sum can be quite significant and not all businesses will qualify. Read More »
Plus, if your business deals with cash, more than any other form of payment, the fact that this kind of financing is based on cards can be a deterrent in itself. You should also consider the fact that you may be asked to change processors. « Show Less
2. It Is Not A Solution That's Suitable Long-term
You need to think about whether you need help with money long-term. If your business is in trouble and you need a more lengthy financing option, then you might be barking up the wrong tree with a merchant cash advance, so to speak. Read More »
While this option can help you out with urgent cash flow to support your business, it's not a good choice to use repeatedly because it can turn out to be expensive in the long run, and thus, unsustainable. Relying on this repeatedly can actually mean you will lose more money further down the line. « Show Less
Is It Right For You? Should You Get A Business Cash Advance?
Not all companies are suitable candidates for this type of business finance. To reach a decision, you should carefully consider your business' needs. For instance, if what you're looking for is a financing option to help you start a business, a business cash advance is not going to help. Instead, GOV.uk may be able to help you with resources for business finance and support.
Read on to discover if it's right for you.
You Should Get A Merchant Cash Advance If :
- Your small to medium business needs capital on an urgent basis
- You deal with a lot of credit card or debit card transactions and meet the minimum amount
- You have bad credit
- You only need to get it as a one-time source of help
- You want a financing option with zero interest or additional fees
- You hate signing documents so you're looking for zero paperwork
Why Choose Us: We research an extensive panel of cash advance providers to find you the most affordable rates, flexible terms and quickest transfer times. You can receive the funds you need within as little as 48 hours!
You Shouldn't Get A Merchant Cash Advance If :
- You don't live in the UK
- You're under 18 years old
- Your business is in deeper trouble than just needing some money to facilitate cash flow
- You need a long-term financing solution or a very high amount of money
- Your business deals primarily in cash and you don't have a lot of credit card transactions
What Can I Do With An Advance?
A business cash advance is typically used:
- in cases of emergency
- when a business is in need of cash flow, quickly
- to fund an investment
Why Is This Choice So Popular For A Variety Of Businesses?
Because it is a relatively quick and easy way of obtaining financing; at least, compared to other similar business financing solutions available to business owners. Especially for small companies just lifting off the ground, it is incredibly important to have constant and consistent funds to support the business.
What Are The Alternatives? Weighing Up The Options
So, now you know all there is to know about merchant cash advances and how they work. You know the requirements, the costs, and even whether or not you should consider it for your own business. But what you haven't considered yet, are what the alternative funding options could be. By considering different options together, you will gain a really good understanding of whether an advance is the best solution for your cash-flow problems.
1. Secured Loan
If you need a larger sum of money over a longer period of time, then you may want to consider secured loans instead. Secured loans have the unparalleled advantage of offering a large sum of money with a lower interest rate, and for a longer amount of time. Read More »
However, the major negative of this option is that you need to have a valuable asset that you can put up as collateral. Not only do you need to own a car or a house, a piece of property, etc., but you can potentially lose it to the lender. This is not a problem if you manage to make the repayments consistently, but in business sometimes this just isn't possible. If you have just one slow month and fail to make repayments, you could lose your asset. « Show Less
If you've never heard of factoring, you may be interested in learning more, as it can be a suitable alternative for your business. Just like merchant cash advances, factoring is not a loan, but more of an advance. It involves selling an invoice to something known as a spot factoring company, at a discounted rate. This ensures cash flow. This is a necessary solution sometimes, because a business will invoice a client, but the actual payment can take a long time (several months) to come. That can severely affect cash flow. Read More »
For that reason, factoring comes in, where you can sell this invoice to an independent company who will cover a high percentage of the payment owed to the business (think between 70% and 80%), and keeps a small percentage as compensation. Once the payment from the client comes through to cover the invoice, the factoring company pays the business the rest of what they are owed, factoring in a fee. This option can be a good compromise between short-term lending and long-term lending, like secured loans, as they are medium-term, with contracts that can last around 24 months. « Show Less
3. Business Loan
Ideally, if you're a business owner, you'd be able to get a business loan, as it is especially tailored to provide funding for your company. One of the advantages of this is that it keeps the business finances separate from your personal ones.
Of course, the reason why some businesses cannot benefit from business loans and why they have to go for merchant cash advances is the fact that your business needs to have been operating for a minimum amount of time in order to be eligible. The period can range from 6 months to even 3 years, which renders a lot of businesses ineligible for this type of financing.
4. Credit Card
Credit cards can be a good alternative, because they are so convenient to use. Most people have access to a credit card, and you can use it for whatever expense you may need and then pay it off later in the month. If you have a 0% credit card, you can even get away with not paying interest on this money. The drawbacks are: Read More »
- It will be in your name, so you will be responsible, instead of the business.
- You need a good credit rating to be elegible for a card in the first place.
- You must pay off the entire balance on the card by the end of each month or risk incurring costly late charges. « Show Less
5. Asset Finance
Asset finance is a financing solution that enables you to acquire assets for your business in a way that does not require you to get a regular loan. Repaying works just like other financing solutions, in instalments that you pay for several months. You can use it for anything from vehicles to machinery to construction, agricultural, or medical equipment.
6. Personal Loan
Personal loans are some of the most popular financing options available, and that's because they are so versatile. You can use a personal loan for any personal need you have, whether that's a big purchase you were planning, covering an emergency expense, or investing in your small business.
Like other alternatives, a personal loan has the drawback of making you personally financially responsible, instead of the business. Should anything go wrong, it is your credit score that will suffer.
Frequently Asked Questions FAQS
Find quick-fire answers to all of the most frequently asked questions surrounding business cash advances below:
What kind of business do I need to have to qualify for a business cash advance?
Merchant cash advances are designed for any UK business, but they are particularly useful for small to medium enterprises. As for what type of business, specifically, there are no restrictions, as long as you consistently achieve a good level of card transactions. Businesses that process a lot of card payments, such as hair salons, restaurants, coffee shops, nightclubs, florists etc. generally make good candidates.
Is the full application made online?
Yes, you apply online by filling out a short form to see if you qualify for pre-approval. Selected paperwork may be required, so you might have to send in some additional documentation as well.
What amount am I allowed to borrow?
You can receive anywhere from £5,000 - £200,000, as long as you fit the few and very simple criteria requested.
Can I get the maximum of £200,000?
The amount you are granted depends on how much money your business makes from credit card transactions. The more revenue you generate through card sales alone, the more money you will be able to receive through an advance.
How are repayments made?
Unlike other loans, you do not make fixed repayments; a small percentage of your daily card sales is simply taken out as repayment. If you don’t get paid, neither do we, so you never have to worry about being able to afford your repayments.