A guide to Business Cash Advances for small businesses

Running a small business often requires a financial boost, and a business cash advance, also known as a merchant cash advance, could be the solution you’re looking for. 

This type of financing is based on your business’s current and projected revenue from card transactions. Whether you need to enhance your cash flow, fund operations, or fuel growth, a business cash advance can help you reach your goals. 

Let’s dig deeper.

What is a Business Cash Advance? 

Unlike traditional business loans, a Business Cash Advance doesn’t involve a fixed loan amount, interest rate, or term. Instead, you sell a portion of your future sales to a lender at a discount. 

This method is ideal for small businesses that frequently process card payments. Common in hospitality, retail, and e-commerce sectors, it provides the flexibility to repay through a percentage of your daily card sales.

How does a Business Cash Advance work? 

With a standard business loan, you get a principal lump sum at the start of the term and then pay interest for as long as that amount is owed. 

Cash advances turn this idea on its head. Instead of having interest constantly “running”, the total cost of finance is agreed upon up-front.

This means you know exactly how much you will repay from the start.

For example, let’s say you want a Business Cash Advance of £10,000.

Here’s how that might look:

• Cash advance amount: £10,000
• Monthly repayment percentage: 20%
• Amount repayable: £12,500

In this scenario, the lender buys £12,500 of your future sales for £10,000. 

Your business receives the £10,000 upfront, and you repay £12,500 over time automatically through a percentage of your card transactions.

The 20% figure doesn’t refer to interest, but rather the proportion of your revenue that will go towards paying back £12,500. 

Let’s see how this breaks down per transaction:

• Customer 1 pays £10: you keep 80% (£8) and the lender gets 20% (£2)
• Customer 2 pays £129.99: you keep 80% (£103.99) and the lender gets 20% (£26)
• Customer 3 pays £450.96: you keep 80% (£360.77) and the lender gets 20% (£90.19)

After these three transactions, you’ll have made repayments of £118.19 towards the total amount. 

Of course, you’ll have more than three transactions in an average day! But this is a simple way to demonstrate how it works. 

The key point is that each of these transactions chips away at the £12,500 repayment amount taking you gently towards the finish line without dramatically impacting your cash flow.

How much can I borrow through a Business Cash Advance? 

Business cash advances typically range from £2,000 to £1m, depending on your monthly revenue. Some lenders might offer advances up to 150% of your monthly card sales, based on their risk assessment.

What can I use a Business Cash Advance for?

Like most short-term business loans, you can use the funds however you please – as long as it’s for business use and not for personal expenses. 

Here are some ways you might use a Business Cash Advance:

• Unexpected repairs or renovations
• Expand stock
• Working capital
• Emergency expenses
• Equipment upgrades
• Website development
• Technology upgrades
• Machinery 

What should I consider when choosing a Business Cash Advance? 

Unlike traditional loans with fixed monthly repayments, a cash advance adapts to your business performance. This flexibility is a key benefit of a Business Cash Advance. 

Since repayments are proportional to your revenue, you pay more when sales are up and less when they’re down, without affecting the total cost of finance. You’ll always be paying £12,500, and there’s no compounding interest.

Are you ready to apply for a Business Cash Advance? 

Applying is quick and easy with the Tide app. Apply via the Finance tab and you could potentially be approved within 24 hours. Lenders will consider your average monthly turnover to determine a comfortable repayment amount. 

To qualify, you need to be a UK business with a card machine and have been trading for at least six months (some lenders may consider shorter periods). Each lender offers different terms, so it’s essential to compare repayment lengths, rates, and conditions.

Head over to your Tide app to check out your finance options in the Finance tab!