Merchant Cash Advance
In the past, lending options for small and medium retailers were limited. But now, more businesses are benefiting from merchant cash advances, which offer a more flexible way to give your business a cash injection and pay the loan back in a way that suits you. A wide range of businesses could benefit from merchant finance but, just like any funding option, it is important that you understand the pros and cons before you decide to borrow.
What is a merchant cash advance?
A merchant cash advance allows a business to borrow money and pay it back over time, based on their sales. Instead of paying back a set amount each month, you will pay back a percentage of your turnover. This means that repayments are always set at an affordable amount and there is less danger of defaulting on your payments. The payments will be taken through an agreed percentage that is deducted directly from your card terminals until the payment is complete. That means that all payments are made automatically, which makes things more efficient for the lender and the borrower.
What kind of business does it benefit?
Merchant finance is particularly beneficial for seasonal businesses. A traditional loan can be very difficult to manage for a seasonal business because your payments will be the same during the off-season when your revenue is very low. But with a merchant cash advance, your payments will be adjusted so payments are not wiping out all of your available cash flow during the slow periods.
What is the application process?
The process of applying for a cash advance is quick and simple, and most businesses are approved within 24 to 48 hours. The interest rates on a cash advance vary a lot depending on the lender and the nature of the business, but they do tend to be more expensive than a traditional bank loan. However, merchant finance is more flexible in terms of repayment, and you usually have more freedom over how the money is spent.
How much can I borrow?
The amount that you can borrow is fairly limited, especially if you are a small business. Lenders usually allow you to borrow up to 100% of your average monthly card turnover and the maximum advance amount will vary depending on the lender. This can be an issue for businesses that take a large percentage of payments using cash rather than card.
If you are a relatively stable retail business that takes the majority of your payments through card terminals, you could benefit from merchant finance. However, a cash advance may not be as beneficial for a company that deals mainly in cash. It is also important to remember that merchant cash advances are more expensive than traditional loans.