Business & Merchant Cash Advance
Finance based on your PDQ machine turnover
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Business Cash Advance
A Business Cash Advance, otherwise known as a Merchant Cash Advance, allows you to raise finance based on your business's credit card turnover. So, what's the process?
Typically, you can receive a cash advance loan equivalent to your average monthly turnover. You repay this amount, plus a fee, by agreeing to give a small percentage (usually 10-15%) of all card receipts to the advance provider until the finance is paid off and the balance is cleared. This is done automatically via the card terminal with each transaction, and you don't have to change your card processor. Unlike traditional bank loans, there are no time constraints on this. In quieter times when less money is coming through your card terminal, you'll pay less money back. In busier times when more money is coming through, you'll pay more money back.
Should I get a loan or a Business Cash Advance?
Although they share a few similarities, a loan and Business Cash Advance are two very different products. One of the main differences between the two is the way they're paid back. Whilst a cash advance is paid back as a percentage of your business's debit or credit card sales over an open-ended period of time, with no collateral or personal guarantee required, bank loans work with fixed repayments.
With a bank loan, you might find yourself short of your repayments if you go through a quiet period. That can quickly become stressful. With a cash advance, you have the flexibility that traditional finance just can't offer. It's super manageable and scalable.
To benefit from a Business Cash Advance, you need to be making the majority of your revenue through a card terminal. If this doesn't sound like your business, you might be better off considering a Short Term Unsecured Business Loan. Don't worry - we can help with those too. Just get in touch.
How does a Business Cash Advance work?
Let's say for example that you need quick access to cash. It's your restaurants busiest season and a fridge suddenly breaks and needs replacing as soon as possible. You could get a Merchant Cash Advance and borrow the equivalent of your business's average monthly turnover.
If your business is in reasonably good health and of course if it receives most of its payments via a card terminal, there shouldn't be too many problems obtaining this source of funding. If a cash advance is agreed, a lump sum should go directly into the business's bank account within weeks, or even days. This compares to the weeks or even months that many could be left waiting to gain access to traditional finance.
You repay this money over time by giving a percentage of card sales (typically 10-15%) towards the repayment with no deadlines. It simply takes as long as it takes. This source of finance is very flexible with adverse credit histories, if that's something that you're worried about. It's important to note however that your business must have been trading for a minimum of 9 months.
A Merchant Cash Advance also frees you up to use another type of finance alongside it, such as a bank loan or equipment lease, in the knowledge that the cash advance won't imperil your entire financial future in the way that other loans can if you are unable to keep up with the repayments. There's also no need to change your PDQ card processor.
Why choose a Merchant Cash Advance?
- It's a great solution if your business needs quick access to cash
- It's speedy and simple, with high approval rates
- No deadlines for repayments
- It won't affect your credit history
Frequently Asked Questions
What is the difference between an MCA and traditional term loan?
Although they share a few similarities, a loan and Merchant Cash Advance are two very different products. One of the main differences between the two is the way they're paid back. Whilst a cash advance is paid back as a percentage of your business's debit or credit card sales over an open-ended period of time, bank loans work with fixed repayments. With a bank loan, you might find yourself short of your repayments if you go through a quiet period. That can quickly become stressful. With a cash advance, you have the flexibility that traditional finance just can't offer. It's super manageable and scalable.
I take card payments online, do I qualify for a Merchant Cash Advance?
Yes, some lenders will take into account all revenue streams when assessing an application. If you only sell your products or services online, then your business may be more suited for E-Commerce Funding.
How much can I borrow with a Merchant Cash Advance?
The amount you can borrow is typically 100%-150% of your average monthly card sales, depending on the lender’s criteria.
What does it cost?
The cost of a Merchant Cash Advance varies from lender to lender and is based on the financial health of the business and other factors such as the percentage taken from future sales. A fixed fee is added to your cash advance and this is usually 10-35% to give you the total amount you need to repay. There is no other set-up, admin, documentation fee - that’s it. For example, if you take a £10,000 advance with a 15% fee, you would have to pay back £11,500.
How are repayments made?
You agree to give a small percentage of your PDQ card takings towards repaying the advance. This is usually 10-20%. Your system is set up and repayments are automatically deducted from each transaction, so you don’t have to make a weekly/monthly payments. For example, if the deduction percentage was 15% and someone spent £100 in your business, you would get £85 and £15 would go towards reducing the balance you have to repay. When the advance and fee is paid off, you go back to keeping 100% of all takings.
Do I have to change the company that processes my card payments?
No, you can stay with your current provider.
Does the deduction process mean it takes longer for me to receive the money I take on my card machine?
No, it shouldn’t. Your takings should still appear in your bank account 3 days after the payment was received. The only exception here is if you currently get your money on a next-day basis (HSBC and some other banks can facilitate this).
What if I need more finance later?
Business Cash Advance deals can be ‘topped-up’ once you have paid back about half or two-thirds of the advance you’ve taken. It remains a facility you can dip into in the future if you need more funds.
Can I get a Merchant Cash Loan if I don't take card payments?
We can look instead at a Revenue Advance (based on sales) or a Short Term Unsecured Business Loan. Call us on 01494 410 125 to discuss.
Are there other business finance options available to me?
Yes, we have a wide range of business finance options. Please call us on 01494 410 125 if you’d like to know more.
How does your business qualify?
You must make the majority of your revenue through card terminals and you must have been taking card payments for at least 6 months. Your credit history is not very relevant. Unfortunately, we don’t deal with start-ups as we do need to see at least 6 months’ card payment history.
How much time do I have to repay?
There are no deadlines. It takes as long as is required, though typically we see most advances paid off within 6-9 months.
How quickly can I get funding?
An application only takes 10-15 minutes to complete, and can take a number days to be assessed by a lender. Once approved, some processors allow the advance to be paid to you within 3-4 days.
Does it matter if my business is a sole trader?
This is not a problem. A merchant cash advance is available to your business if it’s registered as a sole trader, partnerships or a limited company.
What security is required?
None, though you may be asked to give a Personal Guarantee. This is an unsecured form of finance. This means you don’t need to be a homeowner, you don’t need to put any assets on the line and you won’t be asked to supply a guarantor.
What can I use the Cash Advance for?
There are no restrictions on what you can use the advance for as long as it is legal and for your business. This means you can take a merchant cash advance to buy stock, do refurbishments, pay a bill, catch up on VAT payments, invest in marketing or whatever you need it for.
Is this a loan?
No. Technically speaking it is not a loan. What you are doing is selling an amount of your future card takings for a fixed price today. These future takings are ‘sold’ incrementally transaction by transaction via the deduction percentage you agree to while you get a cash payment today for them.
Are there fixed monthly repayments?
Will applying affect my credit score?
Can I apply if I have bad credit?
Can I repay early?
What security is required?
Can I have two Merchant Cash Advances?
Requirements
Applying for a business cash advance is very easy. Below are listed the things you need in order to apply.
- Eligibility Criteria Minimum six months' trading history with your card machine & a minimum six month lease on the premises you are in.
- Documents Required Last six (or
preferably 12) months' merchant statements, proof of ID, proof of bank account
and a completed application form.
- Additional Comments The speed at which you receive your funds depends on your card network. Some networks take 5-7 days and others taking 10-14 days.
Is a Merchant Cash Advance right for me?
In our
experience, there are two types of businesses which are especially well-suited
to merchant cash advance loans...
Seasonal businesses
Seasonal businesses and companies who don't want monthly minimum payments. This is because repayments are linked to your card sales. When business is good, you pay off more. During quieter periods, you pay off less until the full loan amount is repaid.
Businesses with adverse credit histories
Business with adverse credit histories for whom a business loan is not an option. When you choose this type of loan, bad credit isn't usually an issue. That's because repayments are taken from your top line. This means that advance providers are often more comfortable with poor credit histories.
Cash advances against merchant sales are a great fit for many businesses, but not for everyone. Problems can arise when businesses are mis-sold merchant cash advances when other finance options such as straightforward loans are a better option. To ensure you find the right fit for you, please call our experienced business finance specialists today.
A Merchant Cash Advance isn't a one-size-fits-all finance solution. If you don't make the majority of your revenue through credit card receipts, then this might not be the best route for you to take, as this is integral to the way this form of finance works.
Our tips on using a Merchant Cash Advance
Whether you're taking out a Merchant Cash Advance to buy new equipment to expand your business, or if you're working on a specific business project, make sure you set a budget and pin down your plans in the early stages. It's really important to stick to these plans and goals, as you might find yourself spending money frivolously and getting nowhere.
It's also a good idea to be prepared and organise your paperwork. If you're running a business, you're probably used to all the admin. Although a Merchant Cash Advance doesn't require almost as much paperwork as a traditional bank loan, you'll need to provide your credit card revenues so that the provider can determine how much they can afford to loan you. Be prepared with a few months worth of running costs, bank statements, receipts and any other outgoings.
Approval rates for a Merchant Cash Advance are high but that doesn't mean that delinquencies and negative balances won't raise a few eyebrows amongst providers. Remember, they are lending you the money on the basis that they will get it back, so stay on top of your finances to avoid being declined. Don't let the high approval rates lull you into a false sense of security.
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