A Merchant Cash Advance is generally based on a Future Receivables Purchase and Sale Agreement. It is a cash advance made to a business in exchange for a specified percentage of daily future credit card purchases. They must reimburse the advance until a sum greater than the stated amount has been paid in full. This method provides a one-of-a-kind payment method by allowing for flexible payment options.
The “factor rate” or fixed cost of funds is the difference between the huge payment upfront and the stipulated amount or payback amount. Merchant Cash Advances are based on a flat charge or factor cost rather than a principal and interest rate (APR). Unless your merchant cash advance clearly states otherwise, there is no early payment discount for repaying the advance in full early. It is not a short-term loan and an MCA is not a loan against daily credit card sales, but rather an advance funding in exchange for a charge. Merchant cash advances may not have a personal guarantee for the business owner, but they do have a performance guarantee. Only small businesses with steady monthly credit card sales can swap payments and qualify for the program.
Merchant Cash Advance Info:
- Rates: range from 1.10 percent to 1.50%. (This is not an interest rate or APR like bank loans or other business loans). It is a Factor Rate.
- Terms of repayment: There are no term limits. The payback period is predicted to be 6 to 18 months.
- Fees: Typically, origination fees range from 1% to 3%.
- Payment terms: Set a payment percentage based on future card sales volumes.
- Business Credit Standards: Evaluation of both the personal and business credit of business owners are required.
- Documents: An Application form, Credit Card Payment Processing Statement and a Business Bank Statement.