Merchant Finance? How Does It Work?

Merchant FinanceMerchant Finance

Merchant finance is becoming a more common option for UK businesses. Whilst still an emerging form of business finance it can offer some real benefits.

What Is Merchant Finance?

The word ‘merchant’ refers to someone accepting cards as a form of payment. The finance element refers to using the card payment machine as both the security and the repayment method.

Everything is based on card sales with the funder lending a percentage of monthly card sales then taking a 10-15% (typical) reduction direct from the card machine provider on a daily basis to repay the original loan.

The Benefits of Merchant Finance

There are always positives and negatives to any form of finance. The negative is the cost of the finance, as is the case with almost any lending activity. However, in the case of merchant finance there are a fair few upsides, things like;

  • The financial accounts of the business are much less important
  • It works great with seasonal businesses
  • The application process is quick and easy
  • Repayments are linked to sales, so loan repayments are a variable cost
  • Pubs, restaurants, hairdressers and retailers can use merchant finance

These benefits are all things that traditional loan finance cannot provide, we especially like the fact that repayments are a variable cost as they are calculated as a percentage of card sales. It is because of this that merchant finance works great with seasonal businesses.

Is Merchant Finance Right For Me?

The answer to this sits within your business. If your gross profit margin is good enough that you can set aside 15% of your card sales to repay the loan then it definitely a viable option. Merchant finance is not long term, typical terms of 6-12 months so if you are after long term funding then look elsewhere.

For businesses with high propensity of card sales (retailers, restaurants, hairdressers etc) then merchant finance is great for short term funding. It sits ideally for working capital, seasonal costs, premises improvements or other short term projects.

If you are looking at merchant finance as a cashflow solution then in isolation it is not your solution, cashflow finance needs to be partnered with another action to correct cashflow.

How Do I Find Merchant Finance?

There are plenty of suppliers out there and the options are ever increasing. The best advice is to give Lime Consultancy a call on 01293 541333 as we can check whether what you are doing makes merchant finance the best solution.

If you want to know any more then give Lime Consultancy a call, contact via the website or add your comments to the reply button above.

By Dave Farmer

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