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What is Merchant Cash Advance and How to Use It

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First Data Merchant Solutions explains how SMEs can find funding in unconventional ways, while still relying on trusted sources. What is Merchant cash advance? Small business owners received yet another blow recently as official figures[1] released by the Bank of England on July 1st revealed that loans and overdrafts to SMEs shrank by £452 million in May.

With would-be entrepreneurs and small businesses struggling to scrape together the cash needed for survival, it is no wonder that four out of five businesses fail in their first year, according to statistics from StartUp Britain. However, this does not need to be the case, as the growing problem with traditional banking finance has given rise to a number of alternative finance options. Consequently, SMEs have a better variety of funding paths available to them than ever before, as long as they know where to look.

Business minister Vince Cable recently suggested at a Confederation of British Industry (CBI) event that one of the key barriers to small business growth is lack of awareness of these alternative options. Business owners continue to try (and often fail) to seek funding from the same high street banks, despite the falling loan numbers and as such, Cable urges SMEs to seek non-bank funding routes. Yet rather than looking far and wide for different funding possibilities, if small business owners wish to expand their finance options, a trick is arguably to start looking a little closer to home. Many alternative finance schemes enable small business owners to obtain funding from their existing relationships – the clue is very much in the name. For example with “peer-to-peer” lending and “crowdfunding”, alternative finance can be sought from friends, corporate peers, relatives and those with an interest in the sector.

Similarly, Merchant Cash Advance allows small business owners to seek funding from existing payment partners, who are responsible for processing their payment transactions.

What is merchant cash advance? 

Merchant Cash Advance is a UK programme driven by First Data Merchant Solutions, First Data’s direct-to-market merchant acquiring business. Unlike traditional bank loans, which have to be paid back at a fixed rate, with Merchant Cash Advance, the size of the pay-back instalments from small business owners depends on the amount of money they have coming in.

Small business owners are given a lump sum of money from their payment partners, which they then pay back as a percentage of their incoming card transactions. Consequently, SMEs are not forced into the common business-damaging scenario of having to pay back unrealistic fixed loan instalments when the business is experiencing a slow period.Small and start-up companies have a number of costs and bills to worry about and for first-time business owners in particular, this can be overwhelming. With this alternative funding option, it has less to pay back when the business experiences a difficult month and pays more if it has a particularly successful month.  This ensures that the company is never forced to meet inflexible payment deadlines.

In fact, this is also in the interest of the payment provider.. They get their money returned in digestible chunks when the merchant has enough funding available to pay it back.  Therefore there is no pressure on SMEs to cough up large sums that could potentially lead to the downfall of their businesses. Moreover, as the funding is based on incoming transactions, Merchant Cash Advance has high approval rates, meaning that even very small companies can get the financial boost they need to grow.

How do I get one?

Merchant Cash Advance is available to both new and existing First Data Merchant Solutions customers. To be eligible for an advance, merchants must typically process at least £1,000 per month in card transactions.

To apply, merchants must fillout a one-page application, and there are zero sign-up fees. This means that SMEs could make use of their cash advance in as little as three to five days.

Overcoming the funding barrier

Enterprise is the lifeblood of an economy and entrepreneurs are met with new challenges daily.  Getting to grips with the different funding options available can become an additional headache, so SMEs generally trust their banks as funding providers. They are often disappointed after trying to pursue finance from this traditional avenue, so it is important that SMEs consider their existing relationships when looking for alternative finance.  This way they can seek desperately needed capital from a trusted source, without hitting the funding barrier often associated with conventional banks.

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