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How Does a Business Cash Advance Work?

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There will come a time when your business needs a business loan. You could be expanding, experiencing cash flow problems or just need to hire the right employee to make the next step. You will have a number of options, one could be a business loan, or you could choose a more recent financial product such as a ‘business cash advance’.

What are business loans?


A business loan is not unlike a personal loan except that it is specific to the requirements of a business. A business loan will allow a lender to loan a certain amount of money, over a certain period of time with fixed monthly (or a different frequency to suit) payments subject to a fixed interest rate.

A small business loan can be as short as 3 months (although 12 months is more typical) and a typical unsecured loan might be anything from £5,000 – £100,000 – a likely amount for a small business seeking to acquire assets or cash flow for expansion.

When it comes to short-term finance a business loan can help cash flow and carry you over when times get tougher. But depending on what a business requires the funding for, it might require much larger sums over a longer period of time.

A start-up loan can provide you with a substantial loan when you set up your business to pay for stock, wages and manage cash flow. Be aware that they might require certain securities made against it depending on the risks perceived by the lender and they nearly always come with a big stack of application forms and a lengthy assessment of your credibility – both personal and business.

You can get a loan over a longer period of time if, for example, you need to pay for a one-off business expense or fund expansion.

Some lenders, known as peer-to-peer lenders allow you to borrow money from individuals or a group of people, allowing a greater allowance of discussion and flexibility that the banks don’t consider. These loans might look the same as a standard business loan from a bank or traditional lender – they might even be either secured or unsecured – but they will be offered
subject to the decisions of the peer-to-peer lender and not through traditional black-and-white high street lending criteria.

With some types of business loans, you can set out how much you want to borrow and for how long. Some offer flexible repayment options, while others come with no early repayment fees. Any company can apply for a business loan, it doesn’t matter how big or small you are.

What is a business cash advance?

Business cash advance is an unsecured cash boost for your business very different to standard types of business finance.

You receive a cash advance, for example of £10,000-£100,000, which is paid back as and when your customers start purchasing your goods and services through card payments. Payments are made back to the lender at the agreed rate – say 10% of the value of the product which becomes the method of repaying the cash advance loan. The amount of interest charged is fixed, no matter how long it takes to repay the loan.

The benefit comes in being able to pay back your loan at a rate that is suitable for the success of your business. It is popular with retail companies that don’t match up to the qualifying criteria the banks require for a standard bank loan and for other retailers that have a significant number of daily transactions.

How does business cash advance work?

A company might agree to borrow £50,000 from a finance company and agree to pay back £60,000 in total. In effect all future transactions will then allow the finance company to take a percentage – typically 10-25% – of the sale amount until the agreed £60,000 has been paid back. Lenders will take their percentage directly from the credit card processing of each payment and continue to do so until the full amount originally lent has been satisfied.

The immediate benefits of this method are felt by a strong initial cash injection, but the big help comes if the retailer experiences seasonal fluctuations, so in times of slow sales, they won’t need to pay back a fixed monthly amount they cannot afford. However, in times of strong sales, they will see their debt reduced much quicker, albeit at a lower profit margin, until the debt (and interest) has been repaid.

We can help you discover what’s best for your business. Give us a call on 03330 069141 to talk through your options or request a call back below.


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Bobby Turner

Marketing, SEO & Stats Lead Content Expert. 12 years working with B2B, e-commerce businesses. Bobby has written for numerous accounting, financial, hospitality, and fashion publications worldwide.

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