Guide to Merchant Cash advance schemes. Advantages and disadvantages for small businesses. UK based experts. Improve cashflow.

Securing Your Business against Future Sales – Merchant Cash Advance

If you are a small business looking for a short-term cash injection, then a Merchant Cash Advance may be an option that you wish to consider.  Technically a Merchant Cash Advance is not a loan.  It  is more like a credit note given to a business secured against its future card sales. 

Providers of this kind of lending will supply small business owners with a cash amount, secured against future credit and debit card sales.   Effectively the business owner is selling some of the future (predicted) trade to the lender in exchange for a cash amount. The investment is secured provided the business is able to continue to trade.

How Much can I Expect to Pay Back to Merchant Cash Advance Lenders?

The amount that you pay back will depend on the amount that you make on your card sales in any given month.  There are no fixed repayments.  The cash advance is paid back as a percentage of the amount of revenue you earn from credit and debit card sales that you process through your merchant account. 

Payments are made directly to the lender, so they are ‘top-sliced’ straight from your card revenue.  If your business has a good month, then the repayment will be higher.  If you have a bad month then repayments will be significantly lower. 

You will be charged interest which is added to the overall debt on a monthly basis.  The longer you require the cash advance, the more that you pay in interest. 

Finding the Right Merchant Cash Advance Company for Your Business

Flexibility makes this kind of lending perfect for seasonal businesses who may find their turnover varies dramatically between particular periods in the year.  It can also help small business owners out of a sticky cash flow situation caused by increasingly restrictive payment terms offered by some larger companies and organisations to their subcontractors.  Many small businesses fail because they are waiting for payments for work that they have undertaken. 

The Merchant Cash Advance offers an incentive for the business owner to work harder to increase trade and revenues in order to pay back the cash advance sooner, thus saving money on interest rates. It can offer a lifeline for small business owners in the short term while providing flexibility and protect you against potential downtime in your business.

Using the Services of a Merchant Cash Advance Broker

Most Merchant Cash Advance schemes have a few basic requirements and various terms and conditions so we would advise using a broker to help you find your way through what is potentially a minefield.  If you don’t, then you could easily find that unscrupulous lenders are in a position take advantage of your cash flow issues and charge you over the odds. 

There are a few eligibility criteria that you will need to fulfil:

  • Eligible businesses must have a merchant account for card payments, usually processed through a PDQ card payment system or a Merchant Gateway facility. If you have no card payment facilities, then you will not be able to access any merchant cash advance schemes.
  • The business should have been trading for at least 6 months ahead of the application so that the lender can see a record of payments and be reassured that the cash advance is likely to be repaid. 
  • Merchant Cash Advances are unlikely to be offered to businesses with a monthly card transaction turnover of less than £5000. Any specialist broker should advise you of this before you start.     

Finally, you should remember that Cash Advances are secured against future sales so your application will only be considered if there is a reasonable expectation from your lender that your business is sustainable in the long term.  It is vital that you are able to prove that the money is secure through historical sales records or by accurate future profit and loss forecasting, so a detailed business plan is likely to be required. 

As with all lending there are risks and pitfalls that you need to avoid.  For specialist, independent guidance on this kind of lending, why not contact one of our advisors. 


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