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Decision Time: Secured Business Loan vs Merchant Cash Advance

Published on 1st August 2018 - Last update on 31st March 2020

Looking to raise funds for your business? No matter what stage your business is at or how ambitious your vision may be, your ability to achieve your goals depends on the amount of capital you have access to. But for the SME community especially, this is an aspect of running a successful business that can prove particularly frustrating. However, there are plenty of funding opportunities available, but if you don’t know where to look, choosing a suitable solution can be just as troublesome. Two popular products for early-stage UK businesses are Secured Business Loans and Merchant Cash Advance. But in order to make an informed decision, understanding how they work and what makes them so different from each other is vital.

Secured Business Loans

When it comes to the matter of funding, many business owners will instinctively seek to acquire a Secured Business Loan, and for good reason. By presenting unencumbered assets such as equipment, machinery, vehicles or property as collateral, you could borrow anything from £5,000 - £1,000,000. This type of funding can also be used for any number of purposes since there are typically no usage restrictions and could be arranged as short- (up to 3 years) or long-term (3-5 years, or beyond) agreements. During this time, you’ll also be required to make Fixed Monthly Repayments, plus interest. The benefit of the this is that repayments each month remain the same, allowing you to retain control of your budget and predict any potential issues (e.g. cashflow shortfalls) in good time.

However, it’s worth remembering that, since the product is secured, any asset that you present as collateral will be at risk of repossession should your business default on the repayments. Nevertheless, if you’re wanting to apply for a Secured Business Loan you’ll also need to present:

  • Proof of your identity
  • Your business plan
  • Latest and past bank statements
  • Profit and Loss statements
  • Collateral documentation
  • Permission to review your Credit Profile.

It is also worth noting that when reviewing your application lenders will always carry out any necessary checks, including whether you have recent and past CCJs, Accelerated Payment Notices, outstanding debt (e.g. credit card debt) and a reliable history of resolving debt on time. If there any issues this may have an adverse effect on your credit rating, causing lenders to perceive you as a greater risk and charge more interest as a result.

Need help supporting growth or managing cash flow fluctuations? Unaware of what funding opportunities you may be eligible for? Apply for Business Finance or learn more about how you could benefit.

Merchant Cash Advance

On the other hand, another product that could drive your business forward is the Merchant Cash Advance, which is also referred to as a Business Cash Advance. If you’re able to accept credit or debit card payments from your customers, Merchant Cash Advance offers you the means to receive an advance for any number of purposes. This is achieved by submitting no less than 3 of your business’ latest consecutive sales forecasts. So if you regularly earn around £25,000 each month in card payments, you could receive an advance in the same region, if necessary.

Although a Merchant Cash Advance is an unsecured form of finance, having an adverse credit history usually isn’t an issue. This is because Merchant Cash Advances use a Flexible Monthly Repayment Scheme which allows lenders to establish an agreement with your card processing provider, giving them authorisation to automatically intercept an agreed percentage from each card-based sale until the debt has been settled. As such, there’s no fixed term for when the agreement needs to be resolved by and the total amount taken each month can vary, but leaves your cash-based revenue untouched. However, this can make budgeting difficult to achieve.

In addition, the Merchant Cash Advance isn’t regulated or categorised as a loan, on account of the way funding is generated and repaid. This makes it all the more important for you to source a provider you can trust.

Need help sourcing an appropriate finance solution for your business?

For many business owners, navigating what the UK lending landscape has to offer can seem quite an arduous endeavour. With so many different products and lenders to choose from, it’s easy to feel lost and confused. Nevertheless, success hinges on applying for the solution which is most suited to how your business operates whilst giving you the freedom to achieve your vision. But if you’re finding it difficult to weigh up the pros and cons, you don’t need to go it alone. Speaking with an experienced business finance professional could prove instrumental in paving the way forward.

At Rangewell, we’re an Access to Finance specialist who’s mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking to raise funds for your business, apply for Business Finance today or find out more with Rangewell.


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David Harrison

David Harrison

Content writer