UK SMEs look to Merchant Cash Advances for funding

Last post: Sep 25, 2012

Small business owners have found themselves having to pass ever more stringent tests when looking for cash to fund or grow their businesses.

Small business owners have found themselves having to pass ever more stringent tests when looking for cash to fund or grow their businesses. And despite rumours of an economic revival, getting access to credit is apparently getting harder, not easier. A recent study by the Federation of Small Businesses (FSB) shows that 4 out of 10 loan applications by small businesses are being rejected. If you are a cash-strapped business, take heart. There is a new show in town which might signal an end to cash flow worries. Called Merchant Cash Advance, it's a credit facility which pays you a lump sum in exchange for a specific share of your future credit and debit card sales. Thanks to quick approval and almost instant access to capital, it's quickly become a growth industry in the US: last year, more than $600m in merchant cash advance transactions were conducted there. Here, the facility is gradually being introduced by UK finance providers. Qualifying for a merchant cash advance is straightforward. As long as you have accepted Credit card payments for the last 12 months, you should qualify for a Merchant Cash Advance. It costs nothing to apply and there are no setup or application fees. Whether you need as little as £3,500 or as much as £300,000, you can get an advance on future turnover in as little as 3 days. Merchant Cash Advances are particularly useful to businesses such as retail, restaurants, and service companies which have strong credit-card sales but which don't always qualify for loans because they may have bad credit and little or no collateral. While a more expensive form of borrowing – fees vary considerably but will generally tend to be higher than the interest charged on a secured loan or credit line – merchant cash advances benefit companies because the amount you repay varies with your cash flow, so you pay less in slower months. Instead of requiring regular fixed payments, merchant cash advance providers directly collect a set percentage out of your daily credit card sales until they recover the advance and their premium, usually in fewer than 12 months. Unlike with loan repayments, there are no fixed payments so you won't have your back pushed to the wall by repayments in lean months. Because the UK industry is in its infancy, the quality of service providers varies considerably but at Choice Loans we deal with ALL providers in the Uk and can advise you as to the best for your business - at no cost to you, of course. Look at the rate of retrieval your provider wants to fix to. Responsible merchant cash advance companies are careful not to retrieve so much money from a customer that the business won't be able to survive. Your provider should know that if you are operating under a very thin margin – as in a grocery store for example – they will need to be very careful with the retrieval rate. Advance providers typically collect between 12% to 18% of gross sales, but in the case of a low-margin business, they might collect just 10%. Do your calculations and make sure you will have enough money to cover the interest on the advance charges. Merchant cash advances also have a short repayment cycle so are best suited to businesses that have rapid business cycles. In the short term, this will mean your business has less money available to cover operating expenses, so ensure you take this into account when budgeting for the year ahead. For further information please see our Merchant Cash Advance Enquiry form or call us on 0845 1260350.