merchant cash advance With Weekly Repayment
Unlike a loan, a merchant cash advance is a cash advance based on credit card sales held in your qualifying business merchant account. Business owners can apply and get approved within 24 hours. If approved, funds are deposited directly into the business checking account.
A merchant cash advance is a means for businesses to raise capital. It allows business owners from a wide range of businesses to raise funds fast through a simple approval process, regardless of bad credit. For business owners that need cash fast, such as for current bills due, it is a great option. It should be noted that there are potential downsides such as high fees compared to other traditional business loans which should be weighed against the benefits.
What is a merchant cash advance?
A merchant cash advance is a form of advanced money against a business owner’s anticipated future earnings. As business owner(s), you receive a lump sum. In turn, you pay a percentage that is referred to as the holdback or retrieval rate and varies based on your business’s credit card sales along with the repayment period. The percentage can range from 5-20%. The length for repayment will depend on the size of the cash advance and the business credit card sales but falls within 90 days to 24 months typically.
To understand the approximate amount you may receive, typically the past two to sixth months are looked at. That average is used and merchant cash advances typically are about 50 to 250% of the monthly credit average for the business.
Benefits of a Merchant Cash Advance
There are a few benefits to obtaining a merchant cash advance if you are a business owner. These include:
• Simple application process that can typically be completed online;
• Fast funding;
• Accessible without high credit score limits;
• No collateral requirements;
• Flexible payments with fixed monthly payments that stay the same each month; and
• High borrowing limits.
Merchant cash advances are a good way for new businesses to obtain capital fast. They are especially good for businesses that have credit card sales but not a long period of time for credit history.
The Specifics of a Merchant Cash Advance
Merchant cash advances do not have an APR, unlike typical business loans. Instead, they have a factor rate. This rate is the amount that you must repay as the business owner and is represented as a decimal figure, typically ranging from 1.1 to 1.5 to account for the fee of obtaining the cash advance.
This can result in expenses that business owners should understand before seeking out a merchant cash advance. For example, if a business takes out $50,000 and has a factor rate of 1.3 with a twelve-month repayment schedule, then the repayment is $65,000. This equates to a 30% APR. If you agree to a 15% holdback rate then you will be making a $175 daily payment and your overall APR would be 53.9%, after accounting for the daily interest rate of 0.15%. Given the increase from 30%, this is not something business owners should jump into without understanding the potential costs.
The holdback is a percentage of the advance, typically fixed, that is used to determine how much you pay back towards the merchant cash advance until it is paid off. This amount usually ranges from ten to twenty percent. It represents the percent of daily credit card sales that the business generates which go towards repaying the merchant cash advance.
What are the Alternatives?
For those that have the benefit of waiting, time will be instrumental for considering alternatives. For example, term loans, which are like a mortgage, and business credit cards are two viable options for business owners that have time on their side. This can potentially avoid the cost of a merchant cash advance for those that can afford to wait.
Decide What is Best for Your Business
To determine if a merchant cash advance is right for you now and the amount and repayment period you feel fits the business, it is a good idea to weigh the benefit of fast access to cash with the realistic generation of credit card sales that the business has. For those that understand the costs involved, it can be a good option to pay bills now and repay them with income sales.