How does repayment work for merchant cash advances?

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Written by Michael Foote, Insurance and Finance Expert

Michael Foote is the founder of Quote Goat and has over 13 years experience working in the finance, insurance and currency sectors. Since launching Quote Goat he has appeared on TV as well as many of the largest online publications including Forbes, The Telegraph and The Metro. Prior to Quote Goat, he worked in finance in the city for a number of firms including HSBC.

The benefits of an instant cash injection into your business cannot be understated. With few businesses able to grow without a line of credit allowing them to invest in equipment and resources they can’t afford right now, but can in the future, it is vital that loans are available to businesses of all sizes.

One form of loan available to small businesses that receives a large number of payments via credit or debit card transactions, is a merchant cash advance. The loan uses the business’ receivables as collateral to the loan, and whilst the upfront cash can be a major benefit to a business, there comes a time, as with any loan, that it must start being paid back.

Some larger, more traditional bank loans allow for longer periods of time before loans need to be repaid, but often the repayment will be required in larger quantities over varying amounts of time.

With merchant cash advances the loan is paid back over time, as a percentage of their daily, weekly, or monthly sales.

These types of loans are advised to only be taken as a short term alternative to lending where a business owner can identify clearly, an investment that will see their business grow, even despite irregular cashflow (which is normal amongst retail and hospitality industries).

The reason merchant cash flows should only be used a short term solution is because they generally come with interest rates much higher than your average loan.  Rates range from 20-40%, depending on your credit score, and other risk factors.

Although rates may seem high, there are real, tangible advantages to small businesses thanks to the simple comparison and application process for merchant cash advances and quick decisions on funding that can see payments made to your business within days, rather than weeks.