What is merchant cash advance loan
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A merchant cash advance loan is an innovative alternative to the traditional bank loan tends to have easy eligibility criteria so most small businesses should not have any problem qualifying.
If you have little or no collateral, limited business history, or a low credit rating, then a merchant cash advance loan could be a solution to your financing problems.
Instead of looking into collateral or other securities, a cash advance loan is based on daily sales receipts to determine if a business can pay back the advance on time. As a result, rates on an MCA can be a little higher than other financing options.
A cash advance loan is an option to get cash immediately for your business in exchange for funds deducted directly from your bank account in the future.
How merchant cash advance loan work
A merchant cash advance is not a loan but rather is a cash advance based on the future business deposited in a business merchant bank account.
For businesses that make a large portion of their revenue through credit card payments like a restaurant or a retail store, they can use a merchant cash advance like a short-term financing tool.
Documents required to apply for a loan
Merchant cash advance loans are paid back with your daily credit/debit card sales, so a cash advance company will look at your bank statements to make sure you have enough volume coming into the business.
- Bank Statements (recent three months)
- Driver License
- Voided Business Check
Calculate the cost of a merchant cash advance loan
A merchant cash advances loan can get a little expensive for a few different reasons. The most important reason is that merchant cash advances loans tend to work for riskier borrowers with lower credit scores or those with newer businesses and the riskier lending options correlate with a little higher fee.
The Merchant Cash Advance 360 aligns their fees with a factor rate rather than an interest rate. Factor rate ranging from 1.20 to 1.25. A factor rate is what you multiply your loan amount by to figure out the total you will owe.
A merchant cash advance loan example
Let’s say you advanced $20K with a factor rate of 1.18.
$20K multiplied by 1.18 (factor rate) is $23,600, which is what you will need to repay with your daily repayments by daily credit/debit card or bank transactions.
At first glimpse, that might seem like you are just paying an 18% interest rate, but looks can be misleading.
You have to understand the true cost of the merchant cash advance by its APR.
If your lender will be taking 15% of your daily credit card sales and you are estimating $25K a month in credit card transactions, you do repay that advance in 189 days with daily payments of $125.
$25,000 / 30 days = $833 Your Daily Income
$833 * 15% APR = $125 Daily deduction on your income
$125 * 189 days = 189 Days
Repayment structure of merchant cash advance loan
Merchant cash advance repayments can be categorized in two ways.
- You can get an upfront sum of cash, and during the length of your payback period, a small percentage of your daily credit/debit card sales withheld until the advance is paid in full.
- Or you can make one fixed payment every month from your bank account over a set repayment period.
How to apply for a merchant cash advance loan
To get started, we will ask you to complete our one-page application, submit six months of credit card and bank statements.
We require that your business be up-and-running for at least six months before receiving a cash advance loan. Being open for six months will likely increase the success you have with our cash advance loan products.
Another requirement we have is that your business makes $5,000 in sales each month. If you generate less than $5,000 in sales, it may be challenging for you to remit your merchant cash advance.
Also, businesses that we work with can not have any open bankruptcies or dismissed bankruptcies within the past year.
For more detailed eligibility requirements, please fill up this application or call @ +1 (888) 528-0045 for more information.