As it is not easy to receive financing from traditional lenders, more and more companies use the advance payment to get quick and easy access to cash. Let’s look at some of the most important features of this form of financing so that you can decide if it is a good option for your company.
What is merchant funding?
Small and medium-sized enterprises, which may encounter difficulties in accessing traditional forms of financing due to insufficient security or capital, receive a lump sum from the top of the advance payment. The amount borrowed under the buyer advance agreement is then repaid from interest on future sales transactions from receipts from customers who pay with cards at the payment terminal, usually around 8-10% of gross profit on sales. learn more about https://acfa-cashflow.com/ and merchant funding.
In contrast to the repayment plans typical for traditional loans that impose a specific date and amount, the repayment of the merchant’s advance is based on revenues from business operations. This means that the monthly repayment amount will vary depending on the sales volume. The lack of a specific amount that needs to be paid every month, as well as the lack of a specific repayment date, make the advance payment a very flexible financing option for companies. A recent study by the ICM revealed that almost one in five small businesses in the UK are experiencing cash shortages every month. The smaller the company, the more likely it is that permanent problems in this area will grow to great proportions, and here the buyer’s advance is a really outstanding option. When the business prospers, the company that provides the buyer down payment gets a higher amount, and in the lean months, your repayment is proportionally lower. Such repayment regulation helps companies to maintain healthy cash flow.
No Requirement for Security and Capital
Traditional financial institutions that grant loans usually require significant loan security from business owners and often insist on an additional guarantee in the form of a personal guarantee. It is very risky because the owners can lose a lot in the event of failure to comply with these obligations. Because the buyer’s advance is based solely on future sales results, collateral is not required, so it can be considered a much safer method of financing.
Delays in payments and similar weaknesses in commercial loans may also adversely affect the company’s credit rating, which will make financing more difficult in the future. On the other hand, the buyer’s advance payment is not recorded in the credit history, because it is based on sales results, and this, in turn, means less risk for the borrower.
Easy Injection and Fast Credit Decision
Traditional lending institutions typically require tons of documents, including a detailed business plan, financial reports, and tax returns. Even after delivering all of this, you can wait for weeks or months to decide whether to accept or reject the application.
For a change, companies dealing with a trade loan service usually require only proof of the length of your business and information on the number of monthly profits from the sale transaction using credit cards. Since the application requires little paperwork, decisions are made quickly and the percentage of accepted applications is high. If you meet the minimum required standards (usually about nine months of business and sales transactions using credit cards for an amount of up to £ 34,000 per month), you can receive cash within a week of submitting the application.
While the percentage of accepted applications is higher than in the case of commercial loans, the advance payment is a good option for companies in need of a quick and safe cash injection and interested in flexible repayment terms.