{"id":2676,"date":"2020-03-22T16:37:25","date_gmt":"2020-03-22T16:37:25","guid":{"rendered":"http:\/\/localhost\/2020\/swoopMW20\/?post_type=knowledge-hub&p=2676"},"modified":"2024-03-26T11:34:43","modified_gmt":"2024-03-26T11:34:43","slug":"merchant-cash-advance","status":"publish","type":"knowledge-hub","link":"https:\/\/swoopfunding.com\/na\/knowledge-hub\/merchant-cash-advance\/","title":{"rendered":"Merchant cash advance"},"content":{"rendered":"\n
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\n \n What is a merchant cash advance? <\/a>\n <\/h5>\n <\/div>\n\n
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A merchant cash advance is a type of\u00a0<\/em>business cash advance<\/em><\/a>. It is designed with retail businesses in mind. If your business takes regular payments through a card terminal, you can use your recent takings as the basis for this kind of loan.<\/em>
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With a merchant cash, the lender works directly with your terminal provider (the company that processes your transactions) to see how much revenue you are generating and takes a small percentage according to your repayment plan \u2013 and because the lender can view your monthly revenue, they will not require a credit check or need to view your accounts in detail. The repayment percentage is taken \u2018at source\u2019 by the lender, so you don\u2019t need to worry about organising payment, allowing you to concentrate on the day-to-day running of your business.\u00a0
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Factor rate<\/strong>
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The total amount repayable to your lender is dependent on the factor rate, a decimal
figure which denotes the additional figure repayable on top of the cash advance.
A factor rate of 1.0 would equate to repaying the same amount you borrowed – however
most factor rates vary from 1.1 to 1.5, meaning you pay back the initial loan amount plus
an additional sum. For example, a merchant cash advance of R10,000 borrowed at a factor rate of 1.2 would mean a total repayment of R12,000.
The factor rate is set based on the lender\u2019s assessment of the risk involved, with
consideration given to the length of time you\u2019ve been in business, your average monthly
card payment income and the industry you work in.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Is it suitable for an SME? <\/a>\n <\/h5>\n <\/div>\n\n
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Merchant cash advances are particularly useful for small businesses, offering a quick and simple way of accessing additional funds. The sum available is usually roughly equivalent to your monthly revenue, ranging from R10,000 to R15m and repayable over a period of between three months and five years.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Why choose a merchant cash advance? <\/a>\n <\/h5>\n <\/div>\n\n
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A merchant cash advance uses your card terminal to \u2018secure\u2019 lending and get cash fast. You don\u2019t need to have valuable assets but you do need a good volume of card transactions every month. The lender takes payments as a proportion of your revenue. This means that when things are going well, you pay more back each month, but if your business is going through a lean period you pay a smaller amount. Aimed at helping businesses to grow, a merchant cash advance is a form of business cash
advance available to you if your company regularly uses a card terminal to process
payments. You receive a lump sum up front and pay it back in monthly instalments based on your revenue \u2013 so if your business goes through a quiet period, your repayments will
decrease accordingly.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Pros and cons of a merchant cash advance <\/a>\n <\/h5>\n <\/div>\n\n
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Although there are plenty of reasons to apply for a merchant cash advance, it\u2019s important that you\u2019re aware of their limitations to ensure that it\u2019s the right choice for you.
Lenders are cautious when offering merchant cash advances, and the amount they are
willing to loan your business is dependent on your average monthly revenue. If your
business currently operates in a small way and you\u2019re looking for a large up front loan to
expand quickly, you\u2019re unlikely to receive the money you need \u2013 lenders are usually willing to offer businesses up to the equivalent of a month\u2019s revenue.
You may also find that your options are limited depending on your card terminal provider. While some lenders work with a variety of terminal providers, others choose only to work with businesses that use a specific provider \u2013 and the fewer options you have available to you, the more difficult it will be to find a favourable rate that suits you.\u00a0
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You should also be wary of applying for a merchant cash advance if your business takes
payment via methods other than credit and debit cards. Merchant cash advances are
repaid by taking a percentage of your monthly card terminal income, so if you regularly
receive payment via bank transfer, invoice or cash you may find that there are other
finance options that will be more suited to your needs.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Have you also considered? <\/a>\n <\/h5>\n <\/div>\n\n
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You might also want to look at\u00a0supplier finance<\/a>\u00a0(i.e. supply chain finance).
Business cash advances are more expensive than bank loans.
Perhaps the most popular type of business cash advance is the merchant cash advance. You might also want to look at supply chain finance.
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It could also be a good option if you find you\u2019re not eligible for a bank loan, but you don\u2019t want to part with company equity.<\/p>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n \n