The short answer
A merchant cash advance gives a business a lump sum in exchange for a share of its future card and EFTPOS takings until a fixed amount is repaid. It is quick and flexible, but the fixed cost can be high when repaid fast. An unsecured business loan or line of credit is often a cheaper, more predictable alternative.
What is a merchant cash advance?
A merchant cash advance (often called an EFTPOS cash advance, card sales advance or revenue-based finance) gives your business a lump sum now. In return, the provider takes a slice of your future card and EFTPOS takings until you have paid back a fixed total agreed at the start.
It is designed for businesses that take lots of card payments: cafés, restaurants, retailers, salons, gyms and tourism operators. Approval leans heavily on your card sales history, so it can be quick, and there is usually no property security involved.
LoansOne arranges unsecured business loans and 1st or 2nd mortgages, not cash advances. We explain how merchant cash advances work here because many Kiwi owners are offered one, and it pays to understand it before you sign, or before you look at replacing one.
How are repayments taken?
There are two main models:
- Percentage of card takings. A set share of each day’s card settlements goes to the provider before the rest reaches your account. Busy days repay more, quiet days repay less.
- Fixed daily or weekly debit. A set amount comes out of your bank account on a schedule, regardless of how trade went.
Either way, the total you repay is fixed upfront. It does not usually shrink if you repay faster, which is the most important thing to understand about the product.
Merchant cash advance pros and cons
Why owners use them
- Fast decisions, often based on card data
- Usually no property or asset security
- With the percentage model, repayments flex with trade
- Can suit businesses with thin financial records but steady card sales
What to watch
- Cost is fixed, not time-based. If you repay quickly, you have paid the full cost over a short period, which can make it one of the more expensive forms of business finance.
- Cost is not shown as an interest rate, which makes it hard to compare with a loan. Always convert it to total dollars repaid and over how long.
- Daily deductions squeeze cash flow. Money leaves before you see it, which can create the very gap you were trying to fill.
- Stacking. Some businesses take a second advance to cover the first. Two providers each taking a share of every sale can choke a healthy business.
- Limited flexibility. Paying out early often does not reduce the amount owed.
Merchant cash advance vs business loan vs line of credit
| Merchant cash advance | Unsecured business loan | Business line of credit | |
|---|---|---|---|
| How you get money | Lump sum | Lump sum | Draw as needed, up to a limit |
| How you repay | Share of card takings or daily/weekly debit | Regular fixed repayments | Repay and redraw |
| How cost works | Fixed total agreed upfront | Interest over the term, plus fees | Interest on what you use, plus fees |
| Paying early | Usually no saving | Often reduces total interest | Pay down any time |
| Security | Usually none | None in most cases | Varies |
| Assessed on | Card sales | Bank statements and trading | Bank statements and trading |
| Best for | Very short-term needs with strong card sales | Defined needs: stock, fit-outs, tax, consolidation | Recurring, unpredictable gaps |
The real comparison is total cost and cash flow impact. Run each option through the compare loan offers tool and the cash flow gap calculator. LoansOne never quotes a rate in advance. Every loan is priced on your individual circumstances, and the team works to get the sharpest rate available for your situation.
Questions to ask before you sign a cash advance
If you are still weighing up an advance, get clear answers to these first:
- What is the total I will repay, in dollars? Not a factor, a percentage or a holdback figure. The dollar total.
- How is it collected? A share of card settlements, or a fixed daily or weekly debit from your bank account?
- What happens on a quiet week? With a fixed debit, do payments still come out when takings drop?
- Is there any saving if I repay early? Many advances have no discount for early payout.
- What fees sit on top? Establishment, admin or default fees all add to the real cost.
- Does it register security? Some providers register an interest on the PPSR (Personal Property Securities Register) over business assets, which other lenders will see.
- Can I take another loan while it runs? Some agreements restrict further borrowing.
If any answer is vague, ask for it in writing. Then compare the same total-cost figure against a regular business loan before you decide.
Better alternatives for card-heavy businesses
Unsecured business loans from $20,000 to $500,000. Assessed mainly on your business bank statements, which already show your card settlements. No real estate security required in most cases. One regular repayment instead of daily deductions.
Cash flow loans for businesses whose strength is turnover rather than assets.
Business line of credit if your need is recurring, such as stock before peak season or covering a slow month. Draw what you need, repay, and draw again.
Second mortgage if you own property. Fast and flexible 1st or 2nd mortgages for business purposes run from $20,000 to $500,000, with no cash flow or financial records needed and bad credit OK. Useful when you need a larger amount or want the lowest-cost structure available to you.
Not sure which fits? The loan matcher gives you a quick steer.
Already have a cash advance? How to get out of it
If a cash advance (or two) is draining your daily takings, refinancing can reset your cash flow.
- Ask for written payout figures from each provider.
- Add up everything else that is costly or awkward: short-term loans, cards, overdue GST.
- Compare the total payout with the full cost of a single new loan.
- Consolidate if the numbers work. Our business debt consolidation page explains how lenders structure this.
How do lenders view an existing cash advance?
If you already have an advance and apply for a loan, lenders will see the deductions in your bank statements. That is not a deal-breaker. They look at what the business earns before the deductions, and whether paying out the advance as part of the new loan would leave you with stronger cash flow. Being upfront about every advance you have, and supplying payout figures, makes the assessment faster.
Two scenarios
A Wellington café. The owners took a cash advance to replace a broken espresso machine and fund a winter menu change. A share of every card sale went to the provider. When a busy summer arrived, the advance was repaid fast and the full fixed cost had been paid in a few months. For their next equipment upgrade, they used an unsecured loan with a set monthly repayment, which left daily takings untouched. Hospitality owners can see more options on our hospitality business loans page.
A Rotorua tourism operator. Heading into winter, the business had two advances running at once and card takings were falling with the season. Quiet-day deductions still hurt. The owner, who had equity in a home, refinanced both advances with a second mortgage and moved to one monthly repayment through the off-season. Our guide to tourism business loans covers seasonal funding in more depth.
These are illustrative scenarios, not real clients.
What you need to apply for an alternative
- Three to six months of business bank statements (these show your card settlements)
- Photo ID for owners or directors
- Payout figures for any advances you want to clear
- Property details if you would like a secured option
Starting an enquiry takes about 30 seconds, it is free and it does not mark your credit file. An expert reviews every application and matches you to the right lender, rather than sending your file to dozens of them.
Next step
Before you sign up for a cash advance, or if you are stuck in one, find out what a regular business loan would look like. Apply in about 30 seconds or call 09-888 5252 for a straight answer.
