Business cash advances: everything you need to know but have no one to ask

By Danny Girnun, director

Hopefully we all started the new year with some fresh ideas and exciting new opportunities. Here at Merchant Money, 2018 will be the year where we focus heavily on developing innovative and relevant technology. This will hopefully make life simpler and more efficient for all our partners, introducers and their clients. We also strongly believe that product diversification is getting more and more important in today’s competitive market. Being able to understand the client and adapt accordingly to their changing needs is absolutely imperative.

The market seems to be continuously evolving and we feel the successful players are becoming more focused on being client-centric. Among other things, this involves listening to the customer in order to understand exactly what product suits best.

Over the past several years, many lenders have added new and innovative products to their portfolios to meet their clients’ requirements. Merchant Money was one of the first lenders to offer business cash advances in addition to unsecured and secured business loans. Even though the concept of a business cash advance is becoming more widely accepted, introducers, as well as clients, can struggle to really understand how the product works and the related benefits. Here is everything you may need to know.

How it works
Businesses are advanced approximately 120% of their monthly debit or credit card sales. They thereafter pay it back as and when they receive card payments from their customers. Rather than a fixed monthly repayment figure, this will be collected directly off future card transactions, until the advance is fully repaid.

Difference between a traditional loan and a business cash advance
A business cash advance differs from a traditional business loan in that Merchant Money essentially purchases the client’s future credit or debit card transactions. Cash advances are priced using a factor rate rather than an interest rate, and the term is dependent on future trade. Businesses repay us with a percentage of their credit card sales until they have repaid the initially agreed upon balance plus fee.

Who qualifies
UK-based limited companies, sole traders and (unincorporated) partnerships that have been trading for at least six months. Average monthly card turnover must be £3,500 or more.

Why would clients use a business cash advance over a business loan?
The business cash advance is the perfect solution for businesses that experience seasonality in their sales as the repayments mirror the peaks. Therefore, with the business cash advance, companies never need to worry about there being a shortfall at the end of the month. Since there is no fixed term on the repayments, there is never really any pressure. Businesses only repay as they trade.

Companies use our product for all sorts of purposes, from bridging short-term cashflow gaps to stock purchases or refurbishments.