Merchant Cash Advance Limits: How Much Can You Actually Borrow?

A merchant cash advance typically lets you borrow between 100% and 200% of your monthly debit and credit card sales. The funding amount ranges from £5,000 to £500,000. For instance, if your business processes average monthly card sales worth £10,000, you can access between £10,000 and £20,000 through a merchant cash advance.

What is a merchant cash advance?

A merchant cash advance is an unsecured funding option that helps businesses with a high volume of card sales to access money fast. It is not a traditional loan, so no interest is paid back. A lump sum amount is borrowed based on the volume of card sales of previous months, which is paid back by a fixed percentage (called a split rate) of your future card sales.

It means repayments vary by the sales amount. When sales are high, you will pay more, and when sales are zero, you will pay nothing.

Here are the features of a merchant cash advance:

• Instead of interest rates, a merchant cash advance uses a factor rate, which is between 1.1 and 1.5.
• It is not subject to collateral. There is no risk of property loss.
• It does not come with a fixed repayment term.
• Your cash flow will not be affected because repayments vary by daily sales.
• Lenders prioritise your sales volume instead of credit score.

Example:

What are the factors that influence the merchant cash advance limit?

There are a number of factors that influence the borrowing limit for a merchant cash advance:

• Monthly card turnover

Though you can borrow up to 200% of your previous card months’ sales, the borrowing amount depends on your monthly card turnover. The advance is determined based on your average card sales of the previous three to six months.

You have a higher chance to borrow a considerable amount of money if sales volume has been consistently high in the past six months. This also influences the factor. Higher consistent sales signal low risk, and hence the factor rate will likely be lower than businesses with erratic turnover.

• Length of trading history

A trading history is another factor that merchant cash advance providers take into account to decide on the advance amount. You must have at least six months of trading history. A longer history will help you qualify for a higher amount.

• Industry type

Almost all businesses from all industry types are eligible for merchant cash advances as long as they have a high volume of card sales, but some industries are prone to a higher risk.

Retail and hospitality businesses are more likely to secure a higher amount.

• Existing debt obligations

Merchant cash providers also consider how much debt a business already owes. Heavy existing debt repayments reduce available sales revenue, which in turn lowers the advance amount offered.

Lenders generally assess whether the repayment percentage from card sales is manageable alongside other obligations. Although repayments are proportionate to sales, carrying significant debt can extend the overall repayment period.

How to secure the cheapest merchant cash advance deal?

To find the cheapest merchant cash advance in the UK, you should consider the following factors:

• Compare costs

Factor rates determine the total repayable amount. This is a multiplying factor. The higher the factor rate, the higher the total repayable amount will be. Factor rates vary by lenders. Make sure that you do some research to find the lowest factor rate.

Look out for the hidden fees. Some lenders may charge upfront administrative fees, typically between 1% and 5%. In addition, they may impose weekly or monthly charges to facilitate automated collection of payments.

Evaluate the split rate as well. A higher split rate ensures the clearance of debt faster, but a lower deduction ensures a smooth cash flow.

• Boost your card turnover

You can qualify for better factor rates if your business demonstrates stable and high-volume card sales. You can do it by encouraging customers to pay via cards.

A case study on a merchant cash advance

Café in Manchester

The following case study aims to explore why a business might need a merchant cash advance, how it works, and the final outcome, helping businesses to understand whether it can be an effective solution for their financial needs.

Joe has been running a café for more than five years. His small café sells pastries, hot chocolate, cold brews and various types of coffee, but the café is popular among local regulars for his special homemade pastries.

Last year, during the holiday season, the café experienced a sudden surge in demand, which meant the need for increased inventory and staff. Despite increased demand, Joe’s café continued to struggle with cash flow.

Challenge

The café needed immediate funds to fulfil orders and manage operations. The reputation of the café was at stake. Same-day small business loanswere not a viable option due to a challenged credit history.

Decision to consider a merchant cash advance

He discussed his financial problem with one of his friends, Gabriel, who is a restaurant owner, who told him about a merchant cash advance. When Jow explored its benefits, he came to the conclusion that this unsecured funding could bail out his business.

• The speed of the application process is faster than traditional loans.
• Funds accessibility was easier because card sales volume was the basis rather than a credit score.
• Sales-based repayment structure meant that cash flow would not be disrupted. Unlike standard business loans, no repayment was to be made when no sales were made.
• No collateral was required, which meant his business and personal assets were not at risk of seizer.

The utilization of a merchant cash advance

He did some research and contacted a merchant cash provider. Based on the café’s sales, the provider transferred £15,000 to his account. The immediate access to capital made it possible for him to meet the following expenses:

• He bought ingredients and supplies in bulk to ensure he would not run out of stock to meet the demand. Bulk purchases let him secure better prices.
• He hired additional temporary staff for the peak season.
• He invested some funds in marketing his café to attract more customers during the holiday season.

He had to pay 10% of everyday sales to the merchant cash provider.

The final outcome

The outcome of applying for a merchant cash advance was that he successfully completed all orders, maintaining the taste and quality. New customers were satisfied. He asked them to write reviews, which in turn led to more customers, and, as a result, increased revenues and improved business stability.

The bottom line

A merchant cash advance limit is between 100% and 200% of your card sales, but consistency is the key. Businesses with erratic sales often struggle to secure a large amount. They are also charged a high factor rate.

FAQs

• How quickly can I access funds?

You can access funds within 24 to 48 hours, depending on the lender’s policy. Compared to other loans, this provides the fastest accessibility to funds.

• What are the risks of a merchant cash advance?

The risks include:

• They are more expensive than standard business loans.
• Multiple merchant cash advances can cause indebtedness by ruining cash flow.

• Can you pay more than a split rate?

Yes, you can pay more than the agreed split rate proportionate to your sales, but this will not reduce the total amount owed.

Lee Copper

Lee Copper is an experienced financial content specialist helping businesses explore the UK loan market. He writes guides led by experts on business loans and finance products. His work follows strict editorial values to ensure reality, applicability, and simplicity for readers to make well-versed financial decisions. Lee creates in-depth guides backed up by research, industry best practices, and the latest market developments.