An advance against future card takings, repaid as a share of each day’s settlement. Repayment moves with trade, which suits a seasonal business. It is priced on a factor rate rather than an interest rate, and it is often more expensive than a term loan.
Typically 3 to 18 months · repaid as a percentage of card takings · priced on a factor rate
Typical situations
A restaurant closing for three weeks in January to refit, reopening for a spring that pays for it. Card takings are strong nine months of the year and thin in the other three. An advance repaid as a percentage of takings costs nothing extra in the quiet weeks and clears faster when trade returns, which is the one thing a fixed monthly repayment cannot do.
A retailer funding stock for a period it can forecast from last year’s card data. The advance is sized from the takings themselves, so the evidence is already in the merchant statements.
A business with a year of card takings, no property and nothing worth refinancing. Card settlement is the only security available, which is sometimes the honest reason this product is the one on the table.
An advance is quoted as a factor: borrow £20,000 at a factor of 1.20 and you repay £24,000. That figure does not change if you repay quickly, so unlike interest there is nothing to save by clearing it early. Because the cost is fixed in cash terms and the term is short, the equivalent annual cost is usually well above what a term loan would charge over the same period.
Repayment is taken as a percentage of each day’s card settlement, commonly somewhere between 10% and 20%. Quiet weeks cost you less and busy weeks clear the balance faster, so the term moves with trade rather than being fixed. That flexibility is the reason to choose it, and the cost is the price of that flexibility.
Compare it against a term loan before signing, on total cash repaid rather than on the daily figure. Where the business has two years of accounts, some security or a steady monthly profile, a business loan almost always costs less. We will tell you when that is the case, even though it means arranging a different product.
Indicative market ranges, not an offer of finance. Terms depend on the lender, the security and your circumstances.
What the lender assesses
What goes in the pack
Where the merchant statements and the bank statements tell different stories, an underwriter stops. The two are reconciled in the pack, with cash and transfer sales explained, before anything is submitted.
Stacking a second advance on a first is the usual route into difficulty. Where one is already in place we set out the balance and the daily deduction honestly, and often the right answer is to refinance rather than to add.
The facility is tied to the settlement stream, so switching provider part-way through breaks the mechanism it relies on. Any planned change is raised at the start.
We price the term loan alternative alongside the advance on total cash repaid. If the loan is cheaper and the business qualifies, we say so, and arrange that instead.
A factor rate is a multiplier applied once. At 1.20 on £20,000 you repay £24,000 however long it takes. Interest accrues over time, so repaying early reduces it. That single difference is why an advance cleared in five months can cost far more than a loan running for two years.
Usually somewhere around one to two months of average card takings, which is why the merchant statements do most of the work. A business settling £40,000 a month on card is typically looking at an advance in the tens of thousands rather than the hundreds.
You repay less, because the deduction is a percentage of what you actually take rather than a fixed sum. The balance simply takes longer to clear. That is the real advantage of the product and the reason it suits seasonal trade.
Often, yes. Where a business has two years of filed accounts, a steady monthly profile, or security to offer, a term loan usually costs less over the same period and leaves the card settlement untouched. We compare both on total cash repaid before recommending either.
Generally not. Because the cost is fixed in cash terms at the outset, settling early usually means repaying the same total. Some funders offer a discount for early settlement, but it is the exception, and it is worth asking before you sign rather than after.
Usually the cheaper route where the business has filed accounts and a steady monthly profile.
Where the spend is a refit or equipment, which funds more cheaply against the asset itself.
We will come back with what an advance would cost in total cash, what a term loan would cost over the same period, and which one the business is better off with.
