The main advantage of merchant cash advances specifically is that once they’re set up, they require very little oversight
Can carry less risk – As the repayments are automatically taken from the money you receive from customer card payments, there can be less risk of ‘defaulting’ on your loan and incurring fees such as penalty charges than with other types of business finance.
Transparency – The total amount you pay back doesn’t change – the lender will tell you what the total cost is when you take out the cash advance.
Merchant cash advances
Merchant cash advances are by far the most common form of business cash advance, because the payments technology makes it very straightforward to track. They’re designed specifically for merchants – in other words, businesses that take payment using a card machine – and the lender works with your payments provider to be directly involved with each transaction.
The advance amount is usually based on your average month’s turnover, so the lender will want to see your last few months of card sales. As with the example above, you’ll have an advance amount and an agreed repayment percentage.
There’s no monthly repayment to worry about, because every single transaction pays down the debt, and you’ll know the total cost from the beginning.
Business owners often find that the repayments feel painless too, because rather than putting money aside you just carry on as normal, and the advance is automatically repaid. Most merchant cash advance providers offer an online login where you can see the status of your advance, and many will offer top-ups once a certain portion has been repaid.
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Invoice finance
Although it’s not technically a type of business cash advance, invoice finance is worth mentioning here, because like these other products it works by selling something to the lender at a discount – namely, accounts receivable in the form of unpaid invoices. In fact, this is where ‘invoice discounting’ gets its name. Read our invoice discounting page for an example of how the pricing works.
The key point about invoice finance is that if your customers owe you money, you can get most of the value of these invoices from the lender within a day or two, and then the remainder minus fees once your customer has paid. If your business operates in an industry with long payment terms like recruitment or construction, invoice finance is a useful way of smoothing out cashflow bumps and making things https://maxloan.org/installment-loans-de/ a bit more predictable.
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Overdraft alternatives
If you’re looking into business cash advances because of flexibility, it’s also worth considering overdrafts, business credit cards and their alternatives like revolving credit facilities. All of these products give you a pre-approved credit limit that you can use as and when you need – so they’re a useful safety net to have in place.
One downside compared to business cash advances is that the amount you can borrow might be lower, and the cost varies depending on your usage.
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It works by the business borrowing a sum of money which is subsequently paid back through a portion of the business’ customer card payments. A merchant cash advance can be used for any purpose, from inventory purchase to business growth.
Credit ratings are not as relevant – Compared with other types of business finance, your credit rating isn’t as much of an issue because the funding is secured by the lender having access to your account.
