What is a merchant cash advance?
- Merchant cash advance -no personal guarantee
- No set payment schedule
- Payments adjust to daily or monthly sales.
- Quick access to working capital
- Non recourse – If the business should fail
How It works
Typically the shorter the estimated payback of the merchant cash advance the cheaper the factor rate.
The cost of a merchant cash advance ranges from 1- 4% cents on a dollar per month, it’s very similar to traditional factoring programs.
Merchant cash advances do no operate on Interest rates or APR since this product is not a loan. It is not a sale so therefore; no specific time to pay back the advance amount.
How do you repay your merchant cash advance?
There are 3 different ways to repay your MCA
Split Processing – The credit card processing company, that the business is using splits up the credit card sales to the funding company and the business, at the agreed upon percentage.
- ACH –Automated clearing house, Debiting and agreed upon percentage or an estimated fixed amount from the merchant business checking account, that can be reconciled at the beginning of each month.
- Lockbox –Where the business owners or merchant credit card sales get deposited into a trust account and then get split up to an agreed upon percentage % between the merchant business checking account and the funding companies checking account.
|Estimated per business day amount||$297.61||$208.32|
The longer the estimated payback term, the higher the cost of capital,
Understanding the product
So if the daily payment is $297 and there were 21 total payment in a given month, the total monthly collected was $6237.
On the above example:
If $6237 was collected from the business, and the business grosses $65,000 per month, then approximately 10% was purchased from the business which is the specified percentage that was purchased by the funding company. But if the businesses gross revenue decreased to $40,000 on the following month, then the business would be entitled a refund, Since the merchant cash advance company could only purchase 10% of the sales.
$40,000 monthly gross, 10% purchased =$4,000 but collected $6237 then the business owner would be refunded $2,237.
Fixed simple Interest loans are underwritten based on cash flow of the business not on it’s profitability or collateral.
We require at least $10,000 in monthly gross revenue and 5 monthly deposits
We require at least 1 year in Business
A FICO score of 550 or above is required
Understanding the lingo
$50,000 will be wired into your bank account by the Merchant cash advance company
$62,500 is the total amount that the merchant will have to pay back to the merchant cash advance company
It Is the cost of the capital. $62,500 purchase amount divide by $50,000 funded amount total 1.25
10% it’s the daily sales or monthly sales purchased from the business.
It’s a daily payment that Debits the business checking account Monday – Friday, typically there is 21-22 business days in a month, on weekends or holidays there is no debit to your business checking account.