Idaho Merchant Cash Advance
The most common way that small business owners obtain funds is through small business loans. There are a wide variety of loan products on the market to meet the varying needs of businesses. A merchant cash advance is different than traditional small business loans because lenders provide a sum of capital in full to the borrower, and the borrower pays the full amount back, along with a fee. Although this might sound like a traditional loan on the surface – it isn’t. Why? Because repayment of the capital is taken directly from the business’s credit card and debit card sales subsequent to funding.
Essentially, when you receive merchant capital, you have agreed to allow the merchant capital provider to deduct a specific percentage of your daily debit and credit card sales automatically. This means that you make less money on each sale until the merchant cash advance is paid in full. With a traditional loan, the payments are not automatic, nor are they taken directly from your sales.
One of the best aspects of merchant capital is how fast you can get approved. The first step is to submit an application to the merchant capital provider of your choice. They will respond within a couple of days. After you’ve been approved, you’ll receive the full amount of the capital in your bank account. As aforementioned, collection of the capital is from the daily debit and credit card sales of your business. If you were receiving a traditional loan, you would be responsible for making fixed payments that would either be daily, weekly or monthly, depending on the repayment schedule.
Merchant capital payments will vary because they are based on your daily sales. For example, if you have a slow day, then the amount collected from your debit and credit card sales will be less than if you have a high volume sales day. The good news is that you are not penalized for having a slow sales day, which is not the case for some loan products. A slow sales day for merchant capital simply means you repay less that day.
It generally takes an average of about 8 to 9 months to repay a merchant cash advance. However, sometimes the timeframe is about half as long, but it can also be twice as long. The determining factor of how long it will take to repay the advance is how much of your credit card sales is taken, which is dictated by the loan agreement. If you want to pay the advance back over a shorter period of time, they you can simply agree to let the merchant capital provider take a higher fixed percentage of your credit card sales. The higher the percentage, the faster you’ll pay back the advance. However, you also have to keep in mind that a higher fixed percentage means that you have less cash flow.
The aforementioned fee for a merchant cash advance is determined by a factor rate, which generally ranges from 1.14 to 1.48. This is different than measuring fees in interest rates. If you want to determine the cost of merchant capital in terms of APR, then you should anticipate around 15% to 80% APR, and possibly higher depending on the merchant capital provider.
A merchant cash advance is an alternative way to find funding for your business. Perhaps you need more supplies or equipment to fulfill orders you have waiting. Maybe you need a new appliance in your restaurant because the one you had broke. Perhaps you need to take on a new employee, but you don’t have the funding to pay for it right away. Whatever it is, you might need funding to help your business grow and expand, but it’s not always easy to get.
If you’re turned down for a traditional small business loan, you are not out of options. Even if your business is new and hasn’t a business credit score or you simply don’t have a great personal credit score, you can get funding this way. It might not be a traditional business loan, but it’s much faster. Most people who apply for a merchant cash advance are turned down for a business loan by a lender for various reasons, or they do not have the time it takes to wait on funding to occur with a traditional lender.
When you turn in your documentation and paperwork to the lender, you must wait one to two days for funding to appear in your bank account. Before your funding is complete, you will agree to the terms and conditions of the cash advance. You will not pay an interest rate. You will pay a factor rate. This factor rate might fall anywhere from 1.14 to 1.48. It’s equivalent to an interest rate that begins at 15 percent. It’s an expensive method of borrowing, but it’s also a much shorter method of borrowing.
Unlike a small business loan you have years to pay back, you have approximately nine months to pay back your merchant cash advance. You don’t pay back your loan on a monthly basis, either. You pay every single day. The merchant cash advance factor rates are taken from your everyday credit card sales and debit card sales and deducted right from your bank account until your cash advance is paid back in full. It could be as little as four months or as many as nine months before you are able to pay this loan back in full.
All you have to do is provide the correct paperwork to your lender. This is not a time-consuming process. You need a copy of your driver’s license, your business tax returns, your bank statements and credit score, and you must have a copy of your credit card statements. This is all turned into the lender, and they verify this information. Once they verify you have the means to pay back the loan from your credit and debit card sales, they will approve the loan and issue funding. You can have it is as little as two business days from the date you apply.