What are merchant cash advances?

Understanding how merchant cash advances work.

If a business takes payments for its goods or services via a card terminal or through an online payment process then merchant cash advances are a way of raising unsecured finance.

Merchant cash advances are loans provided by a lender to a business and the repayments are met by the lender deducting a percentage of each sale that has been processed through a card terminal until the loan is paid off. This type of loan has no fixed monthly repayments or interest rates to deal with.

How do merchant cash advances work?

A business borrows a sum of money from a finance provider to finance the growth of its company.

The finance provider then works with the cash terminal provider and as each sale passes through the card terminal a percentage of its amount is taken as payment towards the outstanding loan.

As the lender can see, prior to issuing the loan, exactly how much money is flowing through the business there is no need for credit checks or for security to be offered up to the lender.

This method of repayment means that the business will only repay what it can afford as it is based on a percentage of its monthly sales. If its sales differ then the repayments made will also differ.

The amount a business can borrow will depend on its cash flow and the lender will check that the amount recovered from card payments will be sufficient to repay the loan in a suitable amount of time.

What are the advantages of merchant cash advances?

  • It provides a lump sum of cash with no restrictions on its use to help a business develop and grow.
  • It makes raising finance easier for small businesses as there is no need for credit checks.
  • There is minimal paperwork to fill in and the loan can be quick to access.
  • No collateral is required which means that assets such as property, car and equipment are not at risk.
  • As repayments are taken at source from each sale there is no possibility of defaulting on the loan, you will always be able to repay the loan as it is always based on the cash flow from sales made.

Is a merchant cash advance right for my business?

  • If you are a business that receives payment from its sales via a card machine then you can access a merchant cash advance.
  • If you can’t afford to wait too long to get finance then it is a way of accessing cash very quickly.
  • It is a good option if you don’t have a great credit score or have no valuable assets to help you apply for other finance.
  • Repayment is automatic as the lender deals with the card terminal provider so you don’t have to do anything.
  • The amount paid each month will increase if sales increase and the debt will be paid off quicker. Equally if your business experiences a slow period with fewer sales you will pay less each month and the debt will take longer to repay. As a result of this it should always be affordable unlike the traditional loans with fixed monthly repayment.

Have you thought about Invoice Finance as a cash flow solution for your business?

Invoice finance allows you to release cash quickly from your unpaid invoices.

As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.

We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.

Get in touch

Contact our friendly UK advisors on our freephone

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The benefits of invoice finance companies such as Novuna Business cash flow

  • Boost your cash flow without having to wait up to 120 days for your customers to pay you

  • Release up to 90% of the invoice straight away, and the final 10% when the invoice is settled

  • Access funds within 24 hours from initial appointment with our revolutionary digital onboarding process

  • Benefit from our in-house credit control processes, allowing you to focus on running your business, instead of chasing clients for payment

  • Six month trial period followed by a rolling contract

Want to understand more Cash Flow Finance terms?

Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.

We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.

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