What is a merchant cash advance?
A Merchant cash advance is a purchase of the future credit card accounts receivable or total sales. it is an advance payment against business future receivables. Merchants receive a lump sum payment in exchange for an agreed upon purchase amount.
These merchant cash advances are not loans, but are a sale of a portion of the future revenue of the business. Theoretically (Merchant cash advance ) have no set time to pay back the purchased amount to the funding company. The payments fluctuate directly with the merchants daily or monthly sales volume.
Benefits of 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
Funding amounts
$5,000 – $500,000
Simple Factor rates
1.09 – 1.42%
Terms
No set terms
How It works
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Typically the shorter the estimated payback of the merchant cash advance the cheaper the factor rate.
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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.
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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
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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.
Merchant cash advances example
Businesses monthly gross sales $65,000
Business is looking for $50,000
| Item | ||
|---|---|---|
| Funding | $50,000 | $50,000 |
| Purchase amount | $62,500 | $65,000 |
| Factor rate | 1.25% | 1.29% |
| Specified percentage | 10% | 7% |
| 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.
The daily payment it’s just an estimated payment of the specific percentage purchased, there is an option to reconcile the daily payments every month that is adjusts to your monthly revenue. Since a merchant cash advance is not a loan , there is no set time to payback the advance, so if your business drops down in volume then your business would be refunded the over payment of the daily payment.
Who qualifies?
Underwriting process..
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.
How to Apply
Fill out the online application and upload your last 4 Months of business bank statements or email them to us or you can fax them over as well to one of our account executives.