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Merchant cash advances

Flexible funding that addresses your business's working capital needs.

A merchant cash advance can be a useful form of quick, temporary cash flow for your business. This type of borrowing is suited to companies that receive the majority of their payments by card, as such loans can be repaid with a business’s credit or debit card sales.

What is a merchant cash advance?

A merchant cash advance addresses the working capital needs of businesses that accept payments by credit or debit cards. Businesses including retailers, restaurants and e-commerce merchants can get quick funds based on their future credit or debit card receivables. Merchant cash advances can be set up as daily or weekly financing. They are designed to provide a temporary cashflow solution to business owners who might not be able to qualify for other types of financing.

Merchant cash advance repayments are made in line with future turnover. Most commonly this is done using a percentage of future credit card and debit card sales, or receivables withdrawn directly from your daily credit card revenue. In this sense, they differ from regular business loans, where a bank or lender typically offers a cash sum in exchange for making monthly repayments over a set period of time.

How does a merchant cash advance in Singapore work?

Once your application for a merchant cash advance in Singapore is approved, your business would receive a lump sum cash payment in exchange for a sum of its future credit or debit card transactions. This cash injection may generally be used for any purpose, but some providers do explicitly mention expense restrictions.

An agreed-upon percentage of the card transactions will be remitted to the provider whenever the card sales are settled. The fixed percentage of the card sales transactions would then go to the provider as payments whilst credit or debit card sales are made in the normal course of business.

From the sound of it, merchant cash advances are very similar to short-term business loans. The one-time sum that is borrowed will be repaid, on top of a fee determined by your lender. This fee, known as a factor fee, is determined by multiplying your factor rate by your loan amount.

A quick explanation of factor rates

A factor rate is a number above one that your lender uses to come up with your total loan cost. It does this by multiplying your factor rate by your loan amount. They typically range from 1.1 to 1.5, though some lender charge factor rates of 3 or even higher.

Comparing merchant cash advance providers in Singapore

Here is a list of providers who, at the time of writing on March 2020, offered merchant cash advances in Singapore:

  • Majestic Credit: Flexible funds that require minimal documentation. Enjoy improved cash flow without debt, revolving interest, collateral and credit reporting. A cash amount of up to 4 times your monthly card sales may be offered, with a turnaround time of 24 hours.
  • Monetium Leasing: Have the luxury to make repayments based on the volume of your sales. Eligible merchants include bars, online shops, retailers, clinics and even petrol kiosks.
  • Orix Leasing MCA: Receive high cash quantum, unrestricted funds for usage without worrying about collateral or late fees. Turnaround time is approximately 3 days.
  • OCap Merchant Cash Advance: Merchants enjoy liquidity against their future payments receivables for up to 12 months at flexible interest rates.

Is my business eligible for a merchant cash advance in Singapore?

Merchant cash advances in Singapore are ideal for retailers and e-commerce businesses. Yet, any business with a high volume of credit card sales might be able to qualify. In general, your business should meet the qualifications below:

  • The business should be ACRA registered for at least 24 months
  • The business should be a private limited entity
  • The business should have a corporate bank account
  • The business must be registered with an accredited payment processor for at least 6 months
  • The business must be reputable, with cleared AML/KYC checks on board members
  • At least 30% of the business’s shareholders should be Singaporean or Permanent Residents of Singapore

What are the benefits of a merchant cash advance in Singapore?

  • It’s quick and efficient. Unlike business loans that can take months to be approved, a merchant cash advance can provide you with much-needed funds in a couple of weeks or less.
  • Collateral isn’t required. You don’t need to provide any business or personal assets to be approved in order to qualify for a merchant cash advance.
  • There’s typically no credit check. While this isn’t guaranteed, advances for smaller amounts can regularly be obtained with a less-than-perfect credit score.
  • Repayments are based on sales. The amount you repay changes according to your earnings. This ensures small companies with changing levels of income don’t get caught out with fixed repayments.
  • Flexibility: Payment terms are usually not fixed, offering extra flexibility to borrowers.
  • Carefully calculated terms. By reviewing historical sales data a lender can accurately gauge how long it will take your company to repay an advance. This means there is rarely the need for the penalties and inflated fees that a loan can incur.

Are there any drawbacks to merchant advances in Singapore?

  • It tends to be more costly. Merchant advances, in the long term, can be more expensive than other short-term borrowing options. When considering whether to use a merchant advance in Singapore, explore other financing options like business loans as well.
  • Pre-paying does not help. The factor rate applies no matter how long your business takes to pay back the advance, meaning that paying early won’t save you anything.
  • It’s not a long-term solution. Merchant cash advance plans usually last no longer than 12 months. Along with the cost, this means they are unlikely to provide positive results other than for a short period.
  • It can be risky. While past sales information should be an accurate indicator of future sales, industries such as retail and hospitality can be fickle. If your business can no longer pay off the advance, you will need to find the repayment money elsewhere.

Merchant cash advance alternatives in Singapore

Don’t think a merchant cash advance is right for your business? Consider these alternatives instead.

  • Asset-based financing. If your business can’t qualify for an unsecured business loan, try asset-based financing instead. Backing your loan with your business or personal assets can help you get access to more funding, typically at 80-90% of your assets’ value.
  • Alternative business loans. Some lenders offer alternative short-term financing options. This includes crowdfunding and other informal platform solutions.
  • Invoice factoring. Need a cashflow fix but work with other businesses or government agencies? Get an advance on your unpaid invoices by selling them to a factoring company at a discount.
  • Invoice financing. Use your business’s unpaid invoices to back short-term business loans and repay them as your customers pay you.
  • Short-term business loans. If your business needs money upfront and doesn’t rely on customer sales, many alternative lenders offer short-term loans that work a lot like merchant cash advances but come with repayments in fixed instalments. If you are uncomfortable setting aside collateral, focus on unsecured short-term business loans instead.

Bottom Line

Merchant cash advances in Singapore are a viable short-term borrowing option for retail businesses. However, considering the consequences of a default, you should clearly weigh the costs and benefits of using a merchant cash advance before committing to a provider.

Frequently asked questions

How do I apply for merchant cash advances in Singapore?

Most providers have a website you can visit for quick sign-ups. Fill up the online application form with relevant details related to your business. Once your application has been approved, you may be requested to open a “pass-through” account by the provider. You can use this for processing any transactions and the lender can collect their share. Others might simply ask for access to your business’s bank or Paypal account to withdraw the repayments.

How can I get out of merchant cash advances?

If you think merchant cash advances aren’t for you, you may want to consider refinancing the loan with a business loan or another merchant cash advance. This should be done as a last resort, as re-borrowing can get costly. Try to avoid this situation altogether by clearly weighing the pros and cons of the situation before committing to a merchant cash advance.

Are there hidden fees I should be wary of?

This will differ across providers. However, do take note that some lenders may charge fees if your business doesn’t meet its monthly minimum or repay its loans on time.

What happens if I default on my merchant cash advance?

Merchant cash advances are technically not loans. Should you default on your payments, your assets cannot be seized and your credit score will not be affected. However, your merchant cash advance provider may file a lawsuit against you for breach of contract.

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