Restaurant merchant cash advance repaid from your card takings

The funder reads several months of card terminal statements and business bank statements to see what you take by card and how steady it is. It then offers an advance and a fixed total repayable, worked out by multiplying the advance by a factor rate. Once the money is in your account, an agreed percentage of each card sale goes back to the funder, usually split off by your card processor before the rest is settled to you.

• The advance. Sized on your average monthly card takings, how long you have traded and any finance already running.
• The factor rate. Our business loan costs page shows typical starting factors of 1.18 to 1.30 for merchant cash advances, meaning £1.18 to £1.30 repaid for every £1 advanced. Your own figure depends on the funder and your trading.
• The agreed share. The percentage of card sales collected, sometimes called the holdback or sweep. It is set in the agreement and does not change week to week.
• No fixed end date. Most funders estimate a term, but the advance is repaid when the total is reached, however long that takes.

Our main merchant cash advance page covers the product across every sector, and revenue-based loans explains the close cousin that collects from total revenue through your bank account instead of the card terminal.

With a true percentage of card sales, the repayment simply follows the till. If a normal week puts £14,000 through the card machine and the agreed share is 10%, the funder collects £1,400. If roadworks, a storm or the week after New Year halves that to £7,000, it collects £700. If you shut for a week to refit the kitchen and take nothing by card, it collects nothing. There is no missed payment and no arrears letter, because nothing was due.

Two things change that picture, so ask about both before you sign.

• Fixed daily or weekly debits. Some card takings funders collect a set amount from your bank account and reconcile it against your actual sales later. In a quiet week you pay the set amount first and claim the difference back, which is a very different cash flow from a share taken at source.
• Minimum performance clauses. Some agreements let the funder review the arrangement if card sales fall well below the level the advance was based on, or if takings start going through a different terminal. Moving to another card processor without the funder's agreement can breach the contract.

Cash takings are not touched by a split from the card terminal, which is why funders look closely at the mix of card and cash in your bank statements.

Funders work from your average monthly card takings rather than your total turnover, and short-term lenders usually lend up to about one month's turnover, sometimes less for a newer site. Our business loan costs page shows typical merchant cash advance sizes of £10,000 to £500,000 across the funders in our panel data. A few things move the figure.

• Consistency. Steady takings across the last six to twelve months count for more than one strong month.
• Existing advances. Another advance or loan already taking a share of the same takings reduces what a new funder will offer. Taking a second advance from a different funder at the same time is generally discouraged, and our guide to refinancing a merchant cash advance covers bringing advances together.
• Delivery sales. Platform payouts arrive in your bank account rather than through the terminal, so a takeaway-heavy restaurant may suit a revenue-based facility better. See takeaway business loans.
• Trading age. A restaurant in its first months has less history to read. Our guide to getting a loan to start a restaurant covers the earlier stage.

• The total repayable and any fee on top of the factor rate. Fees depend on the lender, so ask for every one in writing.
• Whether repayment is a true share of card sales or a fixed bank debit reconciled later.
• What happens if card sales fall sharply, the site closes for a refit or you change card processor.
• Whether settling early earns any discount, and when a renewal or top-up can be offered.
• How the agreement is classed. Many advances are written as a purchase of future card receipts rather than a loan, so the protections on a regulated loan may not apply. You can check any firm you deal with, broker or funder, on the FCA Financial Services Register.

If an existing advance is already squeezing the account, look at a business debt consolidation loan before adding another.

Card takings funding comes up again and again in our hospitality work. For one existing hospitality client we arranged a £38,000 further advance repaid as a share of card sales, sized on current takings and the repayments already running. A pub client came back for a £14,000 further advance after the funder reassessed its card sales, and an independent food business took £9,000 of revenue-based funding sized to a smaller need. Restaurants that first came to us about a VAT bill appear on our restaurant VAT funding page.