Why YouLend:
YouLend Merchant Cash Advance offers businesses a flexible funding solution that aligns with their cash flow, serving as an alternative to traditional loans. This revenue-based financing model allows businesses to repay a fixed percentage of their daily card sales, meaning repayments adjust automatically with sales volume, paying more during busy periods and less when business is slow.
Key features include fast approval and funding, often within 24 to 48 hours, high approval rates, and an all-inclusive upfront cost without hidden fees or interest. There are no fixed terms or monthly repayments, often no security or business plans are required and minimal paperwork, facilitated by Open Banking connections.
YouLend can provide advances against various payment processors, including Payment Service Providers (PSPs) and Ecommerce & Tech Platforms, like Amazon and eBay. Here are some more examples:
Paysafe, PayU, Mollie, Square, Today, Sumup, Shopify, Stripe, Afterpay, Justeat, Airbnb, booking.com, Clearpay, Elavon, Dojo and many more.
A Deeper Dive into Merchant Cash Advance Loans.
For businesses that frequently accept card payments, a Merchant Cash Advance (MCA) offers a distinct approach to accessing funding, differing significantly from traditional business loans. This product, sometimes referred to as revenue based lending, leverages a business’s future card sales to provide immediate capital, proving to be a flexible option for many UK small to medium-sized enterprises (SMEs) and even larger businesses with high card transaction volumes.
How a Merchant Cash Advance Works
A Merchant Cash Advance is not a loan in the conventional sense; instead, it’s structured as a sale of future debit and credit card receivables. In essence, a business receives a lump sum of money upfront from an MCA provider. In return, the provider is repaid by taking a pre-agreed percentage of the business’s daily (or sometimes weekly) card sales until the advance, plus a fixed fee, has been fully repaid.
Here’s an example of how the process might look:
- Application and Assessment: A business applies to an MCA provider, typically providing recent bank transactions and credit card processing information either via statements or open banking. The provider assesses the business’s average monthly card turnover and overall sales history to determine the advance amount they can offer.
- Offer and Factor Rate: If approved, the provider will offer a lump sum cash advance along with a “factor rate.” The factor rate is a multiplier (e.g., 1.2 or 1.3) that determines the total amount to be repaid. For instance, an advance of £10,000 with a factor rate of 1.2 would mean a total repayment of £12,000. This fixed fee is agreed upfront.
- Repayment Mechanism: Once the business accepts the offer, the funds are transferred. Repayment begins automatically and a small, agreed-upon percentage (often between 5% and 15%) of each daily card transaction is diverted to the MCA provider until the total agreed amount is repaid. The remaining percentage of the card sale goes directly to the business.
- Repayments Aligned with Sales: A key feature is that repayments flex with the business’s sales volume as it’s based on a % of the sales. On busy days with high card sales, more is repaid. On quieter days, less is repaid. If there are no card sales on a given day, no repayment is taken or calculated for that day (depending on repayment frequency).
Key Features and Considerations for a Business
Key Features:
- Speed of Funding: MCAs are known for their rapid approval and funding process with funds often available within 24-72 hours of approval. This is faster than many standard loan applications.
- Flexible Repayments: The sales-based repayment structure provides flexibility, aligning repayments with the business’s actual cash flow. This can be particularly beneficial for businesses with seasonal fluctuations, unpredictable sales or businesses navigating tight cashflow.
- Less Emphasis on Credit Score: While credit checks are performed, MCA providers often place more weight on the business’s consistent card sales history rather than a perfect credit score. This makes them accessible to businesses that might struggle to obtain traditional financing due to a less-than-ideal credit rating or short trading history.
- Unsecured Funding: In most cases, MCAs are unsecured, meaning no business assets or property are required as collateral. However, some providers may ask for a personal guarantee from directors under certain circumstances.
- Simple Application Process: The application typically involves less ‘paperwork’ compared to traditional loans and often open banking can satisfy a majority of the information required.
- Funds for Any Business Need: The capital received from an MCA can generally be used for any legitimate business purpose, from purchasing stock, managing cash flow to funding marketing campaigns or making equipment repairs.
Considerations:
- Higher Overall Cost: The convenience and flexibility of an MCA often come at a higher effective cost compared to regular type loans. While there’s no interest rate, the factor rate can translate to a higher Annual Percentage Rate (APR) if calculated and compared to standard loan APR’s. Businesses should understand the total repayment amount before committing.
- Daily Deductions: Whilst flexible, the daily deductions can impact a business’s liquidity, especially if sales are inconsistent or lower than anticipated.
- No Benefit for Early Repayment: Since the total fee is fixed upfront via the factor rate, there is typically no financial benefit to repaying the advance early.
- Not Suitable for Cash-Heavy Businesses: Businesses that primarily deal in cash transactions will not be suitable for an MCA, as the repayment mechanism relies entirely on card sales.
- Potential for Debt Cycle: Some businesses might be tempted to take out multiple MCAs (known as ‘stacking’) if they face financial difficulties, which can lead to a challenging debt spiral situation.
Suitable Businesses and Circumstances for MCA
Merchant Cash Advances are best suited for businesses that:
- Regularly Accept Debit and Credit Card Payments: This is a key requirement, as repayments are directly linked to card transactions. Businesses like restaurants, takeaways, retail shops (both physical and online), hair and beauty salons, pubs, hotels, and various service centres are prime candidates. This can include various types of ‘card sale loans’ where card turnover is central to financing.
- Have Consistent Card Sales Volume: Lenders will look for a steady history of card turnover, often a minimum monthly amount, to assess eligibility and the advance amount.
- Experience Fluctuating or Seasonal Income: The flexible repayment structure means that during slower periods, less is repaid, which can be a significant advantage for seasonal businesses or those with variable revenue streams created by other factors.
- Specific Business Types: MCAs are particularly well-suited for a range of businesses.This franchise loans, where a new or existing franchisee needs quick capital for setup or stock, restaurant loans and pub loans, where daily card transactions are the norm, cafe loans and vape shop loans, which often have consistent smaller card sales, or for shop loans and retail outlets of all kinds.
Why a Business Might Need to Leverage Funds in Advance of Card Sales:
Businesses might consider an MCA in situations where:
- Urgent Cash Flow Needs: An unexpected bill, a sudden opportunity to purchase discounted stock or a temporary dip in cash flow might require immediate access to funds.
- Working Capital Requirements: To manage day-to-day operational expenses, bridge gaps between receiving payments from customers and paying suppliers or to cover payroll.
- Capitalising on Growth Opportunities: To invest quickly in marketing campaigns, upgrade essential equipment, or undertake minor renovations that can boost future sales.
- Limited Access to Traditional Finance: If a business has a short trading history, a less-than-perfect credit score, or insufficient assets for collateral, an MCA can offer a viable alternative to traditional bank loans.
- Simplifying Financial Management: The automated repayment process can reduce administrative burden and the percentage based repayment method eases the stress in meeting repayments during lower card transaction periods.
A Merchant Cash Advance provides a flexible and rapid funding solution, particularly valuable for businesses that rely heavily on card transactions and need quick access to working capital or to seize immediate opportunities without the complexities of traditional lending. Businesses operating predominantly in card transactions should know that MCA is one of the possible solutions available to them as part of their planning strategies.
Merchant Cash Advance FAQs
Is a Merchant Cash Advance a loan?
A Merchant Cash Advance is typically not classified as a traditional loan, instead it’s structured as the purchase of a percentage of your business’s future debit and credit card sales. This means it doesn’t have an interest rate or a fixed repayment amount or term, in the same way a conventional loan does.
How are repayments made with a Merchant Cash Advance?
Repayments are made automatically as a small, pre-agreed percentage of your daily credit and debit card sales. This means that when your business has higher card sales, more is repaid and when sales are slower, less is repaid, aligning repayments with your business’s actual cash flow.
Do I need good credit to get a Merchant Cash Advance?
While credit checks are part of the process, MCA providers often place a greater emphasis on your business’s consistent card sales history rather than solely on a perfect credit score. This can make MCAs accessible to businesses that might not qualify for traditional bank or standard business loans due to a less than ideal credit rating or a short trading history.
Can I use a Merchant Cash Advance if my business mostly takes cash payments?
No, a Merchant Cash Advance is specifically designed for businesses that accept debit and credit card payments. The repayment mechanism relies entirely on a percentage of these card transactions, so it would not be suitable for a business that primarily deals in cash.
Is there any benefit to repaying a Merchant Cash Advance early?
Typically, no. Unlike traditional loans where early repayment can save on interest, a Merchant Cash Advance usually has a fixed cost determined by a “factor rate” at the outset. This means the total amount to be repaid remains the same regardless of how quickly you repay it through your card sales.