Merchant cash advance – the funding option that’s made for retailers

A merchant cash advance is an easy way for retailers to borrow against a percentage of what they take on payment cards. Repayments are pegged to sales you make via credit card.

In the past, when a business needed finance to grow their business or solve a cash flow challenge, they applied for a business loan. Makes sense, right? Your business needs some cash and a loan gives you just that.

But sometimes a straightforward business loan isn’t the right option for every business. Take retailers as an example. Retailers need to buy stock and pay for staff, equipment and premises. But their income is generally made up of small payments from customers. And most retailers are susceptible to seasonal spikes and troughs in revenue, which often does not give them  the best chance of repaying that standard business loan on time.

This is the challenge that can be solved by the merchant cash advance.

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What is a merchant cash advance?

A merchant cash advance is a relatively new type of funding that’s designed for businesses that use card terminals to process customer payments.

You simply borrow a set amount and make your repayments as a percentage of each card terminal payment until you’ve paid off the full amount. You can generally borrow up to the equivalent of a month’s turnover with a merchant cash advance.

What makes a merchant cash advance so great?

What makes it such a smooth way to get funding for your business is that the lender will work with your card terminal provider directly to check how much revenue your business gets through the card machine. This means that it can be much easier to secure funding through a merchant cash advance than other types of funding, which might require lots of back-and-forth communication between you and the lender.

How the advance works

Perhaps one of the key benefits to a merchant cash advance for a retailer is that you’ll only repay when you can actually afford to do so. Because you make repayments as a percentage of each individual card payment, when sales are slow you’ll repay less than when you’re making loads of sales.

What’s the application process?

Merchant cash advances are also relatively easy to get. Lenders generally don’t need to run credit checks or scrutinise your accounts in their assessment process – that’s because, to make sure you can repay, they only really need to make sure that you receive card payments. It’s also ideal for businesses that don’t own a lot of material assets, like vehicles and equipment, which can be a stumbling block for retailers who are looking for finance.

Another great feature is that you don’t need to spend time processing any repayments to the lender. Because the lender works with the card terminal provider, your repayments are made automatically at source. You’ll then continue to make those repayments automatically until you’ve repaid the total amount you borrowed.

Who’s it for?

Merchant cash advances are ideal for the retail and leisure sectors – businesses that make a majority of their sales through card payments.

For this to be a worthwhile source of funding, you’d ideally make a significant proportion of your revenue through card payments. That will allow you to borrow a useful amount of money in the first place.

Merchant cash advances are a really innovative way for businesses to get a funding boost. Whether you’re planning your next shop opening, taking on new staff or looking for a solution to a cash flow gap, it could be the ideal way to fund it. Unlike many other types of funding, it’s relatively easy to obtain and the repayment structure is perfect for businesses that go through seasonal high and low periods.

This article was brought to you by Funding Options

Further reading

Norah Coelho of PayPal Q&A: ‘Getting access to finance is incredibly important’


Related Topics

Cash Flow
Credit cards