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How do the “Flexible Monthly Repayments” with a Merchant Cash Advance actually work?

Published on 5th July 2017 - Last update on 31st December 2018

Merchant Cash Advance is often considered one of the most flexible business finance products on the market. This is because of the level of flexibility that it offers means it continues to grow in popularity with borrowers. So, what is the flexibility, how does it work and how can it be of benefit to your business?

How do the Flexible Monthly Repayments work?

With most business finance products, such as a traditional business loan, you’re required to make a fixed repayment at the end of each month for an agreed period, or term. However, Merchant Cash Advance turns this notion on its head. Instead of being subject to such rigid obligations, this means of business finance offers Flexible Monthly Repayments that allow you to pay the product back at your own pace.

This is possible because of how Merchant Cash Advance operates around your business, concerning itself mainly around your card terminals and monthly turnover. Flexible Monthly Repayments are designed in accordance with your credit and debit sales, actively intercepting only an agreed percentage from each card-based transaction. And this where the flexibility comes into play.  

As a business owner, you can appreciate the variable nature of your monthly turnover and how it affects your business. Sometimes you may experience an increase in sales or see less, on account of seasonal trading patterns. The Flexible Monthly Repayment plan for a Merchant Cash Advance takes all of these factors into consideration, creating a plan that works around you. As such, this means that when your credit and debit card sales increase you repay more during that month but, should your business, instead, experience a drop in card-based sales then the amount repaid decreases.

What are the benefits of Flexible Monthly Repayments?

Rather than being constrained to uncompromising fixed monthly repayment regimes, Merchant Cash Advance agreements adopt a different approach. Instead of trying to find the cash required at the end of each month, this method of business finance allows you to sit back and relax whilst actively paying at your own pace. An unsecured business finance solution, Merchant Cash Advance could grant your business significant benefits.

Because the amount deducted from your business varies in accordance with the amount of card-based sales conducted, the strain on your business is lessened significantly. It means that your business pays, at the end of each month, only what it can afford to part with from your revenue, leaving your capital fully intact. For example, if a business lender offers you a rate of 18%, that translates into 18p being deducted from every £1 spent via card-based transactions.

Another useful benefit of Flexible Monthly Repayments is the absence of fixed terms or agreed repayment periods. Because of how your card-based sales can fluctuate during the course of each month you can settle the repayment plan as quickly or as slowly as your card sales determine. But, it is worth noting that most businesses who apply for a Merchant Cash Advance solution tend to take only 6-12 months to repay the amount advanced.

What are the cons of Flexible Monthly Repayments?

As well as the many benefits that Flexible Monthly Repayment plans offer your business, there are also other factors that you must consider in your decision. That said, however, by being aware of potential issues before entering into an agreement you will be in a much stronger position should issues arise.

One of the potential problems that some business owners face involves budgeting. Because the amount deducted each month can vary, it’s impossible to anticipate exactly how much of your monthly turnover will be left intact. Although the repayment plan only takes a set percentage, allowing it to avoid dipping into your capital, as business owners we often find ourselves contending with other outgoings such as business tax demands, utility bills and staff wages. Consequently, you may, on occasion, experience moments where your finances may become stretched.

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David Harrison

David Harrison

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