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Merchant Cash Advances are a relatively new innovation within the finance sphere and offer an alternative method of raising capital for vital business needs. The mechanism is simple, a lender lends to your business using your card machine takings as security on the loan. It has been most widely adopted within the retail and leisure sectors, as Merchant Cash Advance is most suited to businesses that have a majority of sales as card transactions. Repayments on the loan are then taken as a proportion of revenue.
It is a quick and simple method to raise funds, and any business that uses a card terminal for payments can apply. Your card terminal provider will work with the lender to give visibility on how much money is coming into the business monthly, on this the lender will then base how much it is comfortable lending to you. This makes it a fairly transparent and simple type of lending on the lenders behalf and there is often limited need for credit checks or detailed inspection of management accounts. Since it is more straightforward, the lender can quickly agree an amount to loan and structure the repayment to suit.
Example
During the 2018 heatwave, disaster hit for a local client of ours, famed for their Ice Cream which it makes and sells on site. Their Nemox Gelato 5+5 Twin Crea Ice Cream Maker simply stopped working in early July. Solely being an Ice Cream seller, our client really did have all it's eggs in one basket, and being such a seasonal business, with limited trading months they had no choice to buy a new one. At almost £6,000, with no time to save up, they needed a solution. This is where Merchant Cash Advance was perfect, we set it up with one of our lenders, who based the loan on the previous months' sales, (given the glorious weather we had last June, it was a good month for the ice cream aficionados) and the funds were advanced immediately, enabling them to get the new Nemox installed and up and running in a matter of days.
Flexible Finance
The nature of Merchant Cash Advance makes it one of the most flexible forms of finance on the market, as you only repay a percentage of your revenue through your card machine. So payments go up and down in line with your businesses income. Which makes this package even more beneficial to a seasonal business like our ice cream makers, who throughout the rest of July, August and September would have have had strong sales and so would have paid back a larger proportion of their loan then they would the following six months, benefiting cash flow.
Pain Free Repayments
Since the lender works with the card terminal provider directly, the repayments don't come through your bank account and so they almost become invisible, and one less thing for you to think about. With finances and loans taken off your mind, you can focus on running your business .
Leaves other lines of credit free
By utilising Merchant Cash Advance, it keeps your other lines of credit free for when you need them, such as business loan, lease or hire purchase. One of our brokers will be able to best discuss your situation and advise which means of finance works best for your business currently. It also enables you to borrow a smaller amount as Asset Finance deals tend to start around the £10,000 mark.
Downsides
With greater flexibility comes some drawbacks, firstly the amount you will be able to borrow depends on your turnover through the card machine. As a general rule of thumb you'll be able to borrow the amount equivalent to a months takings. So if last month you took £5,000, you'd be able to get a Merchant Cash Advance of around £5,000. However if you only take a small percentage of your payments through the card machine, and the rest as cash or bank transfer, then you might struggle to get a sizeable loan.
Sound right for your business?
If a Merchant Cash Advance sounds like a good fit for your business, why not give GSM a call today or contact us via our website and we would be delighted to discuss your requirements and see how we might be able to help.
Release the shackles on your business with fast, efficient and friendly finance from GSM.
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It's great to see how flexible and straightforward this financing option can be, as illustrated by the ice cream shop's success story. The ability to tie repayments to revenue fluctuations is indeed beneficial for seasonal businesses. For those who may need a different type of financial support, DaysLoan offers accessible payday loans designed to address short-term cash flow needs with transparency and ease.