Merchant Cash Advance

A merchant cash advance works by using your future customer card payments to advance a single payment of cash to your business. This is then repaid back using a small percentage of your future card sales.

The percentage that you are asked to repay is agreed upfront so you have clear visibility of the schedule. A monthly merchant transactions turnover dictates the sum you will receive by way of the advance. As a minimum criteria should be constantly taking about £5,000 per month in card volumes to qualify in card revenue, you can find this on your merchant statements. If your business is achieving a good volume of credit card sales on a monthly basis, but has a cash flow need, our facility is a fantastic way of acquiring the extra funds your business to grow.

It works through an agreement set by the provider and the business, once the agreement is set the outlay of the merchant cash advance. In it will be such as the payback, advance amount, and holdback percentage will be discussed and an agreement between both parties will be made.

When the agreement is made, the advance is transferred to the business’ bank account in exchange for a future percentage of receivables or card receipts, these are your customer card transactions.

After the agreement has been made you business agreed on the percentage of revenue through credit card purchases are withheld according to agreed the percentage. The withheld percentage will pay back the sum that was initially borrowed. This practice will continue until the advance has been paid. Access to a business owner’s merchant account eliminates the collateral required for a traditional small business loan.

A fixed percentage is taken from every sale, meaning that the more payments made (transactions) the faster the advance is paid off. This rule also applies if the business has fewer transactions in a particularly slow term. The balance will still be getting paid but within less time. Meaning the business pays back the advance that is tailored directly to the business intake of merchant cash deposits

Here’s an example of a typical repayment:

In this example a small retail outlet processes £10,000 per month via their card terminal, this allows an advance of £10,000 to the retailer. The owner of the business pre agreed that 10% of their business card sales will be used towards the rsettlement of the loan with the merchant cash advance lender at the start of the arrangement.

The independent retail business turns over £10,000 on average every month in card sales, the owner is expected to repay £1,000 (10%) every month until the loan is fully repaid.

As there is no there is no set repayment term, it is predicted the business will repay the total advance amount of £12,000 in approximately twelve months. The payback period is flexible and may be shorter or longer, depending on sales. Remember, you only pay back when you sell to customers. Average repayment times are 4 months – 6 months as there are not a fixed repayment schedule.

You might look at these figures and think “I’ll be paying 10% interest”, but that’s not the case. With a merchant cash advance, repayments are taken from your revenue — so the 10% figure doesn’t refer to interest, but rather the proportion of your revenue that will go towards paying back £12,000.

The most important thing to understand it is done on a proportional basis. An advantage to this is repayments are mirrored in line with your sales, and the payback period is dependent on your sales cycle. The great benefit is that the total cost of finance doesn’t change. Meaning you will repay £12,000 without any compounding interest.

This method of repayment means that merchant cash advances are more flexible than bank loans, because instead of a fixed monthly repayment that has to be met regardless of your sales, the amount you repay goes up and down each month in line with your sales.