A merchant cash advance, also known as a business cash advance or PDQ loan, is a short term unsecured cash injection that is loaned against your business’ future credit and debit card sales.
Unlike a traditional unsecured business loan, there are no fixed monthly payments to worry about, as a percentage of the money is repaid automatically every time you process a payment on your card machine. It also means your repayment schedule reflects the ebb and flow of your business performance. The more card payments you process, the quicker your loan is paid off and vice versa.
This financial arrangement is unsecured, which means it is not loaned against any assets that the company has. Instead the funding is loaned against your business’s future credit and debit card sales. So, it is a finance option suited to any UK businesses that have a merchant account and process card payments through a PDQ card machine or merchant gateway facility.
How does it work? Is a merchant cash advance a loan? How much could I borrow? What is a factor rate? What are the advantages? What are the disadvantages? Do I qualify for a merchant cash advance? What if I don’t qualify for a merchant cash advance? How a merchant cash advance can be used Is a merchant cash advance the same as a business cash advance? Example business uses of a merchant cash advance
A merchant cash advance lender will usually advance a capital amount equal to that of your monthly card sales turnover. An agreed percentage, usually around 10%, is then deducted from each of your future card sales to repay the loan.
Each time you process a sale through your merchant card machine, 90% of the revenue from the sale will go into your business bank account and 10% will transfer to the lender to repay the advance.
So, if you processed £100 through your card machine, you will keep £90, and the remaining £10 will be paid automatically to the lender via your merchant bank account.
Here’s an example of a typical repayment:
A small independent retail shop borrows £5,000 to buy stock and agrees to repay £6,000 at a factor rate of 1.2. The owner also agrees that 10% of the business’s card sales will be used towards the repayment of the loan.
The shop turns over £10,000 on average every month in card sales and is expected to repay £1000 (10%) every month until the loan is fully repaid.
As there is no fixed term, it is predicted the business will repay the total advance amount of £6000 in approximately six months. The payback period is flexible and may be shorter or longer, depending on sales. Remember, you only pay back when you sell to customers.
Although it can be referred to as a card machine loan, this kind of funding is not technically a loan as it simply works by selling future card revenue to the lender.
You can benefit from a fast cash boost without the usual restrictions associated with traditional loans; there may well be no credit check and approval is pretty quick, often on the day of application.
Typically most advance amounts can range between £2,500 to £300,000. The amount your business can borrow will depend on your average monthly card turnover. The more sales you process, the more you will be able to borrow.
Our merchant cash advance calculator is designed to offer you an estimate of how much you could borrow and the total repayable amount, including factor rate costs.
It is intended for use as a comparison guide in relation to quotes you may have already received or as a starting point during your initial enquiries. You can compare your merchant cash advance rates by using our calculator.
I want to lend £
My factor rate from the lender is %
I take on average £ per month in card sales
I want to repay back % of future card sales
Total loan repayment
Daily average repayment
Repaid in around
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
A factor rate, shown as a decimal figure, is used to calculate how much the advance will cost you rather than a traditional interest rate percentage.
The factor rate will vary significantly depending on your business industry, risk and trading performance, but you can expect it to range between 1.1 to 1.5.
For example, if you borrow £10,000 and the factor rate offered is 1.2, you’ll repay a total amount of £12,000. The fees are worked out by just multiplying the amount you borrow by the factor rate (£10,000 x 1.20 = £12,000). In this case, it will cost £2,000.
Loans against credit card sales have many pros for a relatively new start-up or SME business, including:
Only payback on future credit and debit card sales - With this type of finance product you only repay when you process customer card payments, repayments are based on your card sales, meaning that your cash sales are safe.
Fast access to funding - With high approval rates and quick decisions, you can receive the money within days.
Unsecured finance- Your business collateral is not required as security for the loan. This can benefit many businesses, especially those who do not own any assets.
No business plan required - Unlike a traditional business finance lender who may need to see your business plan, business cash advance lenders don't demand to see a business plan. From looking at your merchant statements, they will already know your past card performance and be able to predict your future card sales.
All credit ratings are considered - Poor credit is often not a barrier, as funding is secured by granting access to your accounts.
Less paperwork and hassle - Some lenders can directly access your merchant account statements digitally via your provided merchant ID. This speeds up the process and saves you submitting the merchant statements via email or post.
Works in line with your cash flow - All businesses have the odd poor month on sales. Sometimes it’s due to factors out of your control such as seasonality, weather, changes to the UK economy or other external economic factors. The key advantage with this type of funding is that when you do have a slow month on sales, you pay back less to the lender. This takes the financial pressure off you and your business.
Less risk of defaulting - Unlike other traditional forms of business finance such as bank loans, you can be hit with penalty charges and other fees if your business defaults on repayments. As repayments are automatically taken through card sales with a merchant loan, you don't need to worry about defaulting.
No APR or fixed monthly terms - From the outset, the lender will make you aware of the total cost of borrowing based on the agreed factor rate. There is no APR, hidden fees or other charges associated with the borrowing.
Borrow £2,500 to £300,000 - You can qualify for a cash advance that mirrors your monthly card turnover. In some cases, you can qualify for as much as 150% of your monthly card sales.
As with any business finance, certain commercial loan products may suit some businesses more than others. The main disadvantages only really apply to those businesses who don’t meet the eligibility requirements for the merchant cash advance product.
If your business doesn't process card payments, then, unfortunately, it won’t qualify. If you do, however, process card payments through your merchant terminal, you will need to hit a certain amount of monthly turnover before your application is approved. Turnover should be in the region of £2,500 of card turnover per month.
Some merchant cash advance lenders may have a requirement to transfer you from your existing card terminal provider to another merchant processor. The need to do this isn’t as great as it once was as funders now have partnerships with many of the UK merchant service providers. On a positive note, it’s good to know that even if you are required to transfer, the process is managed for you as part of the funding process.
To be eligible for a business cash advance, there is some mandatory criteria.
These requirements mean that start-ups with less trading history or those who don’t meet the minimum card sales may well struggle to obtain this kind of funding. If you don’t meet the criteria, don’t worry! We have a wide range of other business finance options available for you.
There are some instances where a business may not qualify for a merchant cash advance. Maybe you have a merchant card machine, but your monthly card takings are too low for the lender to consider at this particular time. Or, maybe your business hasn’t traded long enough to meet the criteria required.
The good news is that both instances are probably only a temporary thing. Once your business has traded more than three months, you could and should try applying again. If, on the other hand, you have been trading for longer, but you don’t turnover more than £2500 per month you could consider how to increase your card sales within your business.
For example, at point-of-sale, is your card terminal and card payment signage highlighted enough? Can you increase the volume of card sales just by making your customer more aware of the card options available rather than them paying in cash? Increasing your card sales turnover and sustaining those sales over at least three months will increase the probability of meeting the eligibility requirements for the application process.
If you don’t qualify for a business cash advance at this time and you need the funding as soon as possible, don’t worry - we have many other alternative business funding products that could work for your needs. For a quick cash injection into your business which like a merchant cash advance, is also unsecured, we have a range of funding options available. Try using our short application form to receive a no-obligation quote from our partner team. You’ll be surprised by the options available and the flexibility of the business loan products we have.
There is no restriction on how you use a merchant cash advance. It could be put towards growing your business, addressing an emergency or improving cash flow. Here are some examples of how this kind of funding could support your company:
Training and recruiting new staff - if you’re looking to expand or diversify the business or you need to deal with a seasonal upsurge in demand, the chances are you may well need to upskill or expand your team. A business cash advance can help you to invest in staff development or expansion without becoming encumbered by the trappings of a traditional bank loan. As a merchant cash advance has a fast funding timeline, it means you can scale your employment resource quickly and have the funds in hand ready when to do so.
Purchasing stock - having the funds to hand to purchase more stock to sell is a vital part of business cash flow. Many businesses face challenging times, especially when you may have a late payer or other financial hiccups to contend with. A business cash advance can help you procure what you need, when you need it. It could be that you want to add more lines to your product sheet or you don’t have the existing funds to keep your stock at the right level.
Purchasing new equipment - if you have been in business for a while, it may be time to upgrade some of your existing equipment but you might not have the capital to do so. Or, perhaps, you need to purchase some machinery or technology that you don’t already have in order to extend your offering.
Refurbishing or expanding your premises - there may come a time when you will want or need to upgrade your premises, particularly if you’re in a customer-facing or hospitality sector. Alternatively, you may want to make changes to the building if you are growing/planning to grow rapidly, and your existing property does not support that growth.
Helping with your cash flow - all businesses see cash flow rise and fall, particularly those in the hospitality trades where demand will often be seasonal. To keep your business on the right track during those slower times, sometimes additional funding is often required. A merchant cash advance reduces the financial repayment pressure on the business - when sales are low, so too are your repayments.
Advertising and marketing - to keep your brand awareness high, promote new products or services, and attract new customers, advertising is a key part of any business’ marketing. Using your funding as an investment in advertising can help you to stay at the forefront of the minds of existing clientele and introduce you to potential new clients, helping you to thrive and grow.
Emergency repairs - whether it’s repairs to your building or equipment due to accidental damage, such as fire or flood, old age or criminal damage, a merchant cash advance could help to keep your business running smoothly when you need to carry out repairs quickly.
Yes, it is. Both of these terms are used commonly to describe the same business funding product.
Businesses most suited to this kind of lending are those that process a lot of payments through debit card or credit card sales, such as businesses in the hospitality or retail trade. Here are some examples of the most common business types:
We have helped many restaurants in the UK to find the funding they need to grow with a merchant cash advance. It is a product that is well-suited to the hospitality sector, especially restaurants who transact with a high level of card turnover.
Many restaurants have in the past looked towards asset finance for purchasing equipment for fitting out premises. This type of funding for a restaurant has brought a fresh, flexible product to the hospitality sector — a repayment structure unlike any other commercial loan product on the market.
Many restaurant business owners have used our services many times and have renewed and increased their borrowing as their business has grown over time.
High street retail shops and other convenience stores are at the heart of the community. They are also the backbone of the UK business community. The high street has faced tough times over the last few years, especially when high street banks have reduced their borrowing and left the high street themselves.
The business cash advance product has meant that many high street retailers have had regular access to the funding they need to survive and thrive.
A business cash advance also works in the same way for online sellers. Lenders provide funding in the same way through online merchant payment service providers.
So whether you are trading on eBay and need more stock, growing your Shopify store or driving your e-commerce website, this business loan product is an ideal way to raise the funding you need.
Funding for pubs and bars and clubs is available through a merchant loan. Pubs, especially gastropubs, take card payments from customers based around food and drink orders.
We’ve helped many pubs and bars raise the finance they need to develop their premises, buy new equipment and grow.
There has never been a better time for hotel businesses in the UK. With record-breaking figures of travellers opting to stay and holiday in the United Kingdom, hotel and B&B owners are racing to keep up with demand.
Funding for hotels has become more accessible than ever before through the merchant cash advance product with many of our hotel owners frequently using and re-using our services.
Funding for salons, whether it’s for new equipment, salon and shopfitting, signage, marketing or any other funding requirement a cash advance is a perfect solution for hairdressers and beauty clinicians.
An excellent product for garages seeking finance to grow. Maybe you are looking to raise funding for Vehicle Lifts, ATL, OPTL Test Lane equipment, MOT wheel and tyre equipment, roller brake kit and more. A high level of credit card payments from customers means that many garages qualify for merchant funding. We have helped many garage businesses expand their business.
"A merchant cash advance is great for businesses that take card payments from customers and are in need of a quick cash injection. With the benefits of being unsecured and having the payment flexibility that mirrors cash flow, it can be more expensive than other forms of business funding and should be considered as a short-term funding option. We are also active members of the British Merchant Cash Advance Association (BMCAA)"
Chloe Mckenna - Finance Specialist
"Capalona are amazing! The business cash advance product suited my business needs. Would recommend to anyone looking funding."
Kirk - B&B Owner
If you’re still not sure about whether a merchant cash advance or any other form of business financing, is the right solution for you, speak to one of our trusted advisers on 0800 133 7042.