Merchant cash advance
Get funding without a deposit or asset and pay it back with your future sales.
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If your business receives the majority of its payments by card, you could benefit from a merchant cash advance. A merchant cash advance is similar to a business loan, except repayments are made through your future credit card and/or debit card sales.
What is a merchant cash advance?
A merchant cash advance is a type of loan available to businesses that have regular EFTPOS or credit card settlements. Unlike a regular business loan, with a merchant cash advance, you repay the loan with your future card transactions. There will also be a fee the lender will charge for providing the service. While easier to apply and qualify for, merchant cash advance loans can be more expensive.
This cash advance will be received in a lump sum. It can be used for various business purposes, including bridging gaps with cash flow. You can also use it to pay your staff, purchase stock, buy new equipment or make renovations.
How much you can borrow will depend on the lender and your business. In general, it can range from $10,000 to $1,000,000.
What are the fees associated with a merchant cash advance?
There are 2 fees you need to note when it comes to merchant cash advances:
- Holdback. This is the amount of each transaction your company makes that will go to the lender as part of the repayment. This is usually 10-20% of the amount paid to you in a customer transaction.
- Payback. This is the pre-agreed profit the lender will receive in addition to the loan repayment. This is typically 20-40% of the loan amount. This can vary depending on the amount borrowed as well as on the size and perceived security of your company.
Compare other business loan options
If your business has a few outstanding invoices, invoice financing can help manage your cash flow and get access to funds you need. It's a type of business loan that is secured by the unpaid invoices and comes with reduced risk, no asset requirements or interest payments.
What are the pros and cons of a merchant cash advance?
Pros
- Quick and efficient. Business loans can take months to be approved, but you can get quick funding with a merchant cash advance. It will take a few days or weeks to receive funding.
- No assets required. You don’t need to provide business or personal assets as security for the loan. The funds are secured against your transactions instead.
- Easy to qualify. Your credit score won’t always play a role. In some cases, credit checks won’t be needed, especially for smaller amounts. The lender will consider your ability to repay the loan more than your credit score.
- Repayment flexibility. How much you have to repay isn’t fixed, and there isn’t a loan term either. Your repayments will depend on your income. This can be an advantage if sales are slow since your repayments will then reduce in line with your sales.
Cons
- Costly. This type of advance can be more costly than traditional business loans. This is because it comes with high fixed fees.
- Short terms. Merchant cash advance plans don’t last beyond 12 months.
- Can be risky. It’s difficult to predict what your future sales will be, even with past sales information. If your business can no longer pay off the advance, you will need to find the funds for repayment elsewhere.
What should I consider before I apply?
- How much you need to borrow. Merchant cash advances do not charge interest, but there are costs. Given that this type of advance can be expensive, it’s important to assess how much you need. Don’t ask for more than you need since you’ll be paying for that money too.
- The payback rate and overall costs. Find out what the payback rate is. In some cases, it can be higher than the interest rate charged by standard business loans. This rate is also determined by how risky your business is. If the lender thinks your business is risky, chances are the rate is higher. This will increase the cost of your loan.
- Short terms. The term for the advance won’t be beyond a year. This makes merchant cash advances a short-term solution. Keep in mind that you’ll have to repay the loan within this short term. If this makes you uncomfortable, consider a longer term solution.
- Other funding solutions. While merchant cash advances are easier to access, there may be cheaper alternatives. It may be worthwhile shopping for alternatives to see if they may be easier on your finances.
Is my business eligible for a merchant cash advance?
While merchant cash advances are easier to qualify for than standard business loans, you still have to meet some criteria. These include the following:
- Minimum income. The lender will have a minimum income requirement you will have to meet.
- Regular EFTPOS/credit card settlements. This type of advance is only suitable if you have a high volume of card settlements.
- Age of business. Some lenders may require your business to be operating for a certain amount of time. Depending on the lender, this can be 6 months or 1 year.
- Active ABN or ACN. You’ll need an active Australian Business or Company Number to apply.
How can I apply for a merchant cash advance?
🤔 Work out how much you need to borrow and what you can afford.
🔎 Start comparing lenders and products. Don't forget to check all the fees and eligibility criteria.
✅ Select lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.
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