Forward Advances, the merchant cash advance provider, wants to provide £250m worth of cash to small businesses in the e-commerce space by 2023.
The lender, which set up in April 2020, is one of a new wave of small business funders base lending decisions based how much you are selling each month. In recent months Clearbanc and eBay have both launched their own versions of what’s known as merchant cash advance in Britain, while PayPal has been offering it for some time.
By tying its technology to your bank data, accounting software or social media ad accounts, a lender has a real-time view of your monthly income. This means repayments fluctuate as a percentage of income, rather than being a fixed amount each month like a bank.
Although well-established in America and in Sweden, where the concept originated, merchant cash advances are still a relatively new concept in Britain.
Hasam Silva, managing director of Forward Advances, said: “In the US merchant cash advance or revenue-based financing is a well-understood product but, in the UK, less so. Half of all founders I spoke to last year hadn’t even heard of the concept, which was a challenge.”
How Forward Advances works
To date, Forward Advances has lent money to around 50 small businesses with an average loan being £50,000.
One of the advantages of using open-banking technology is that lending decisions can be made within a couple of days.
Forward Advances can lend anything between £10,000 and £1m with the average repayment term between five or six months.
The lender charges a fixed fee of 6 per cent for its service, with a revenue corridor of anything between 10 per cent and 30 per cent of monthly income.
To qualify, a small business must have at least six months of sales data and monthly income in excess of £10,000.
Although Forward Advances, which is an offshoot of seed venture capital fund Forward Capital, can lend to any sector, it specialises in e-commerce, marketplaces and B2C software-as-a-service (SaaS).
Its cash so far has come from parent company Forward Partners but it is close to signing a debt facility with an institutional lender, so that 80 per cent of its capacity going forward will come through institutional debt.
To date, the 50 small businesses which have drawn down Forward Advances cash have split the money equally between digital marketing and buying stock.
Silva points out that businesses that only spend on digital marketing and don’t have the inventory to fulfil sales are not serving the customer. Vice-versa and the stock sits on your shelves unsold.
As part of the offer, Forward Advances offers a free one-on-one session with a business mentor, up to three hours of advice, helping customers plan to grow their business and scale their e-commerce company.
Silva said: “We can provide support even if we don’t do day-to-day execution. Plus we can put our customers in touch with paid-social media advertising experts.”
In time, Forward Advances would like to have its own inhouse social media team who could help small business navigate, what is, the increasingly complex world of social media campaigns.
Silva said: “The value we add is making it more tailored and personalised for e-commerce than someone like PayPal.”
Silva shrugs off any talk about the death of the high street – all that’s happened is the high street has moved online.
And he’s not fazed by e-commerce giants like Amazon either.
The next era of the internet he says will be about providing much more intelligent, curating products for their target customers or a brand concentrating on doing a specific product really well, such as recent Start-Up Series winner – and Forward Advances customer – Bedfolk.