All three put cash in the business. The difference is how you pay it back. A cash advance comes off your takings. A loan is repaid in set instalments. An overdraft is a limit on your bank account that you dip into and pay back as money comes in. Pick the one whose repayment fits how your money actually arrives.
Side by side
| Merchant cash advance (MCA) | Working capital funding | Bank overdraft | |
|---|---|---|---|
| What it is | Funding upfront, based mainly on your turnover | General business funding, not tied to one invoice, asset or order | A limit on your business current account, for example Standard Bank's |
| How it is repaid | A share of your card or bank takings, or a fixed daily or weekly amount, depending on the funder | Usually fixed instalments over an agreed term | "repaid as money enters your account" (Standard Bank) |
| How the cost is shown | A repayment factor agreed upfront, about 1.18x to 1.35x (indicative) | Risk-based and set by the funder | Interest only on the amount used, plus fees (Standard Bank: R69 a month and a once-off 1.26% of the limit) |
| Term | Usually an expected term of 3 to 12 months; with a turnover split, the end date can move | An agreed term | "payable on demand and reviewed every year" (Standard Bank) |
| Who provides it | Specialist funders; we arrange it | Funders; we arrange it | Your own bank. It is not one of the funding types we arrange |
Merchant cash advance
It suits a business with strong, regular card or bank takings of at least R600,000 a year. If the funder takes a share of takings, a slow week means a smaller collection. The South African SME Finance Association's Code of Conduct describes that card-split version as a purchase of future card receivables, not a loan.
If the funder takes a fixed daily or weekly amount instead, the deduction generally stays the same even if sales drop, unless the funder agrees to change it. A fixed-repayment advance is set out differently by each funder, and the agreement states its legal structure. Read it before you accept.
It may not suit you if your margins are thin enough that regular deductions would bite hard, or if you're already repaying another daily or weekly deduction.
Working capital funding
It suits a business that needs money for more than one thing, such as stock, salaries, a seasonal gap or growth, and can plan around a set instalment. The cost is set by the funder after looking at your application, so we don't publish one rate across all funders. A personal surety from the director may be required. Ask about it, and what it covers, before signing.
Bank overdraft
In our view, an overdraft is the most flexible of the three for small, short gaps that come and go, because you only use what you need. Standard Bank, for example, says you "only pay interest on the balance used". It is offered by your own bank, on its own terms. If your bank will give you one at a price you are happy with, it may be the simplest answer. We won't pretend otherwise.
It is less useful when you need a larger amount at once, or when your bank won't extend the limit. That is often where a cash advance or working capital funding comes in.
Which fits your situation
| Your situation | Often fits | Why |
|---|---|---|
| Card takings are strong, but some weeks are quiet | Cash advance with a turnover split | Collections move with sales |
| You need a set amount for several costs and want a fixed plan | Working capital funding | Same instalment each time, so you can budget |
| Small gaps that open and close within the month | Overdraft from your bank | You pay interest only on what you use, plus the bank's fees |
| Supplier wants paying before you can sell the stock | Cash advance or working capital | See funding to buy stock |
| Most income is invoiced to other businesses | Neither; look at invoice discounting | See invoice discounting |
| Turnover under R600,000 a year | Working capital may fit; a cash advance through us won't | Our cash advance floor is R600,000 a year |
Does the National Credit Act apply?
Where the National Credit Act (NCA) covers an agreement, interest and fees are capped. For a business, the NCA usually covers a company or close corporation (CC) only if both its annual turnover and its asset value (counting related companies) are under R1 million. Even then, it doesn't cover a loan or other credit transaction of R250,000 or more.
An overdraft is a credit facility, and the Act treats facilities differently. Section 9 puts a credit facility only in the "small" or "intermediate" categories, never "large", so the R250,000 rule as the Act words it is about credit transactions, not facilities. Whether any of these three is covered for your business depends on the agreement, so ask the funder or bank. See NCA maximum interest rates.
What we do
Quick Access Capital is a broker. We don't lend. We work with registered Pty Ltd companies and close corporations (CCs), trading for 12 months or more, with funding from R50,000. We look at more than one route and tell you which could fit. You pay us no broker fee. The funder may pay us a commission or referral fee on a funded deal.
Next step
Check your fit, or read more about merchant cash advances and working capital.
Sources
- sasfa.net: an MCA is a purchase of future card receivables and not a loan
- standardbank.co.za: only pay interest on the balance used
- justice.gov.za: NCA s4, s4, s9 to
- gov.za: R1,000,000 and R250,000 NCA thresholds