Merchant Cash Advance Loans in UK

by | Aug 22, 2022 | Finance

Running a business can require continuous cash flow to be able to keep it afloat. Believe it or not, businesses don’t usually rely on just their cash flow when it comes to running their businesses. What the business usually does is to apply for business financial loans that can help them through various needs that the business would go through at times. A merchant cash advance is one such business financial service that businesses apply for.

Just what is a Merchant Cash Advance? A Merchant Cash Advance is an alternative of a business loan or a business financial plan. Usually, small businesses that are in need of funds but do not have any available assets that they can use as security to secure a business loan or funds.

cash advance text on sign board with cash on the side
Small businesses that are in need of funds but don’t have available assets to provide as security can apply for a Merchant Cash Advance.

When a business gets a merchant cash advance, the security would come from future sales that are done through the business’ card payment terminal. The repayment amount goes directly to the lender and does not enter the bank account of the business itself. And because future transactions, sales, or payments will act as a security, a business does not need to secure any collateral as a requirement for this type of business financing.

MERCHANT CASH ADVANCE: HOW TO GET ONE

Getting a Merchant Cash Advance is actually quite simple. A lot of providers can give a business various deals with different options and conditions. What is needed is a card terminal machine which will help the third party process payments that will help process the transactions of the business.

If and when a business gets a merchant cash advance, the financer or the lender will be the one working with the card terminal provider for the lender to be able to surmise and understand the business’ current finances. The business’ monthly cash flow and sales are included in this transaction, and if the business has enough cash flow and revenue that are transacted through the card terminal, then it is highly likely that the merchant cash advance will be approved and the business will be given an advance that is usually the usual maximum amount of the business’ average sales.

advantages of getting a merchant cash advance loan list with coffee, biscuit and pencils on the side

ADVANTAGES OF GETTING A MERCHANT CASH ADVANCE TO A BUSINESS

There are several reasons why a business chooses to apply for a Merchant Cash Advance, but generally, what are the advantages of actually getting one, besides the additional capital benefit of course. Here are a few advantages for businesses:

The business gets fast access to additional funds

The key point here is the easy and quick access of a business to additional funds for its use. When a business applies for a merchant cash advance, the business will be able to access funds faster than usual. This is because Merchant Cash Advance fenders act quickly, being able to contact the company or provider of the card terminal machine, be able to get the information that they need, approve the cash advance and immediately provide the funds that the business applied for.

And because the decision for the approval comes from the information solely, the business would no longer need to spend a generous amount of time to gather and consolidate requirements they would be required of in other similar small business loans.

Easy Payment Plans

Businesses will no longer have to worry or think about when their payment is due as the payments are automatically deducted and taken from the card terminal automatically. The borrowing business basically pays a percentage of their own revenue from the sales they get from card transactions, this means there is no cash flow issue when it comes to a business’ everyday workflow.

cash flow problems

Since the borrower is paying a percentage of revenue from card sales, it doesn’t create cash flow issues. When sales are high, more money is paid back to the lender. When sales are slow, the borrower automatically makes a smaller payment, so it won’t cause cash flow problems.

Flexibility and Ease of the use of the funds

Business loans when applied for usually are already for a certain use of the business. This means that when getting approved for a business loan, a business may only be able to use the loaned amount for the purpose it was applied for. And most of the time banks and financial institutions double check with the business about the status of the loan.

With a merchant cash advance a business has the freedom to use the amount of money that they get with a merchant cash advance loan. This means that whatever the business thinks would be the best fit to use the funds that they received, they are free to do so.

Easy to qualify for

One of the main reasons why a merchant cash advance is preferred is that it is actually easy to qualify for. This is because there are limited checks on a business credit score and the requirements for its financial history may be inexistent. For small amounts the minimum requirements are even waived.

smiling business woman writing on paper in front of laptop
Merchant Cash Advance has a simple application process and can be completed online.

What the lender here takes a look at when it comes to requirements is the business’ main income in order to check and determine if the amounts funded can be repaid by the business.

A Merchant Cash Advance is unsecured

Another unique advantage of a merchant cash advance is that it is an unsecured loan. Most loans will require collateral in the form of assets of the business in order to secure the amount the business is asking for.

In a Merchant Cash Advance, the amount loaned is actually secured by the future card transactions that the business will have, this being the main reason why collateral is not a requirement.

There is transparency from the start

With a Merchant Cash Advance, the transparency is there from the very start. There are no hidden fees and the cost of the loan is given and set by the lender from the very start.

disadvantages of a merchant cash advance loan

DISADVANTAGES OF GETTING A MERCHANT CASH ADVANCE TO A BUSINESS

A Merchant Cash Advance is not applicable to all businesses

One thing to note about is the importance of a business’ card payment terminal to a merchant cash advance. This means that there needs to be a high number of sales that is made through card payments, and a business, even if it has steady sales, if those sales are predominantly made in cash or invoice sales, then the business would not be suitable for this kind of business loan.

Interest Rates can be higher compared to other business loans

Business loans come in all shapes and sizes, and that goes the same with the interest rates that come with the business loans. Comparing the interest rate of usual Merchant Cash Advance loans to other existing loans, there is a huge difference when it comes to interest rates. This is usually the case especially when it comes to unsecured business loans, the interest rate is higher because of the fact that it is unsecured.

There are limits on the amount a business can borrow

The limitations would actually differ from one business to another as the loan amount is based on the business’ average monthly revenue. While some financial institutions consider the whole monthly revenue, some lenders only consider the revenue made through the card terminal transactions of the business. The amount loanable may not be large enough for the actual need of the business.

A Merchant Cash Advance Loan is not a long-term funding option

Due to the nature of a merchant cash advance, this type of business loan is not a loan that a business can use when it needs something for the long-term. The high interest rate of a merchant cash advance is also not a great factor for something that is long-term. Usually, this type of business loan is only for short-term cash relief.

two happy business owners looking at laptop in cafe
This kind of business finance can generally be more expensive than other loan options.

KNOW YOUR TERMS IN A CASH MERCHANT ADVANCE LOAN

With all of the terms and conditions that various business loans have, it would be easy to get quite lost if you aren’t familiar with some of the common terms that are used in Merchant cash advance loans.

Principal

This would refer to the amount the business is looking to borrow and the amount that they must repay. Upon approval of the merchant cash advance loan, the principal is the size of the loan of the business. A principal is reduced upon payment of the loan amount.

Factor Rates

Upon payment of the loan amount, the payment is divided into payment of the principal, and payment of the fees that are determined by the factor rate of the loan given to the business. The factor rate equation is usually easy to compute. If, for example, the principal amount of the Merchant Cash Advance is 10,000 Australian dollars and the factor rate is 1.2, the total amount that needs to be paid back is 12,000 Australian dollars (10,000 x 1.2). The factor rate differs from lender to lender but usually ranges around 1.09 to 1.5 factor rates.

Payment Period

Like all the other loans, the payment period would refer to the timeframe that the business has in order to pay the Merchant Cash Advance Loan. The usual payment period for this type of business loan can range anywhere from three months to 1 year or 24 months.

Frequency

Remember that in a merchant cash advance, payment for the principal is automatically deducted from card payments, while this is true, some lenders give the business options for other payment plans. The frequency meant here means how often a business will and can pay the lender.

EDM machine with card
Payment for the principal is automatically deducted from card payments.

Percentage deduction of credit card sales

A business is able to pay a merchant cash advance loan through a percentage deduction of credit card sales. A percentage deduction of credit card sales is a portion of the sales made by card through the business’ card terminal that is automatically deducted to serve as payment for the principal. The percentage usually varies by the lender but is usually within 5% or 20% depending on the terms and conditions given and agreed upon by the business.

WHAT CAN A MERCHANT CASH ADVANCE BE USED FOR?

While there are a variety of reasons that a business can have with regards to getting a merchant cash advance loan, there are several reasons that are common with the businesses that applies for this type of business loan, here are a few:

Relief for the Cash Flow

This is usually what businesses have a problem with. A big percent of businesses has experienced difficulties with their cash flows, and while some may be able to get through them, other businesses are left unable to pay their obligations and sometimes even their employees.

Because of the quick approval of a merchant cash advance loan, the amount of money lent can be used immediately for supplies, materials, wages, distribution, and even events.

Sudden and Unforeseen expenses

A merchant cash advance will be able to help businesses with sudden and unforeseen expenses. Businesses can use the cash advance for maintenance of equipment, or even repairs, cover professional fees for services needed, or any other hidden expense that can pop out anytime.

business owner applying for a merchant cash advance loan concept
Merchant Cash Advance is one of the fastest types of business finance.

IS A MERCHANT CASH ADVANCE RIGHT FOR YOUR BUSINESS?

This type of business loan may seem like a good option for a business loan for your business, however take note of all the advantages and the disadvantages of getting a merchant cash advance loan.

If your business is in need of a short-term loan for several unexpected expenses, then, yes is the answer. But if your business checks out too many disadvantages, it is better not to opt to try getting one at all.

Remember that in business loans, business owners must remember that the loan applied for adds to the capital of the business, rather than help a business achieve a certain capital. Use a merchant cash advance to give your business a head start, and then from there you will be able to set yourself apart from your competitors.

NEED FUNDING FOR YOUR BUSINESS? GET A FREE QUOTE TODAY AND GET FUNDED!

CLICK HERE TO GET A FREE QUOTE

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