2019 Buyers Guide : How Does a Merchant Cash Advance Work?
According to Wikipedia:
A merchant cash advance was originally structured as a lump-sum payment to a business in exchange for an agreed-upon percentage of future credit card and/or debit card sales. … The term “merchant cash advance” may be used to describe purchases of future credit card sales receivables or short-term business loans.
Merchant Cash Advance Calculator (Annual Percentage Rate Loan)
Merchant cash advances mca is an ideal vehicle for companies seeking business funding, capital funds or what is commonly referred to as a line of credit. Although technically not a loan, this financing option provides rapid capital funding for any business with uneven cash flow or seasonal businesses. The capital for merchants is a lump sum or advance funds deposit based upon the merchants monthly credit card sales. This is reflected on the merchant account credit card processing accounting software statement from the merchant credit card processor.
How to Calculate a Merchant Cash Advance
Since the amount to be repaid is more than the amount borrowed, how do you calculate what the repayment amount will be? This factor will vary among lenders, but you should be quoted a percentage to help you estimate the total amount to be repaid. For example, if you agree to pay the amount borrowed plus 15%, then you can multiply the amount borrowed by 1.15. You will then need to take into consideration any fees associated with the cash advance terms.
To estimate how long it will take to pay back the cash advance, take the amount borrowed and multiply it by the factor rate. Borrow $100K with a factor rate of 1.17. Multiply $100K by 1.17 = $117,000. Assume a 9% holdback. Divide your monthly sales ($100K) by 22 (days in the month). Take that number and multiply by the holdback. $100K / 22 = $4545 (average daily sale). Multiply that number of $4545 X 9% = $409. That is approximately what you’ll pay daily. Divide $117,000 (total amount owed) by $409 = 286 (payments to equal $117K) Assuming 22 days in the month, take 286 and divide by 22 and this equals 13 or the approximate number of months to repay the loan.
Step-by-Step Process: How to Calculate Loan Amount
To calculate the amount of your loan and payments, you will need to have numbers for the following items:
- – Amount of cash advance you will receive
- – Factor rate (converted to a decimal)
- – Fees (may be referred to administrative cost, origination fee, or closing fee)
- – Average daily/monthly credit card sales
- – Percentage to be withheld from daily sales
With this information, you will be able to calculate approximate daily payments, how long it will take you to repay the loan, and the total amount you can expect to pay.
- 1. To figure out how much your payment will be, take your average daily credit card sales amount and multiply it by the percentage to be withheld from daily sales.
- 2. Calculate the total amount of the loan by taking the amount of cash advance you will receive and multiply it by the factor rate.
- 3. To see how long it will take you to repay the loan, take the total amount (from step 2) and divide it by the daily payment (from step 1).
The loan amount, or capital for merchants is a percentage of your monthly credit card transactions. This includes debit card sales and your daily credit card sales. To calculate your total borrowing amount multiply your credit and debit card annual revenue by 10 to 13 percent.
Here is an example. Let’s assume your company generates $200,000 a year in annual revenue. Take 10 to 13 percent of that number. That means you’ll receive between $20,000 and $26,000 as the borrowing amount.
$200,000 x .10 = $20,000
$200,000 x .13 = $26,000
What can you expect to pay?
The factor rate is based upon the risk to the MCA provider. One major difference between an annual interest rate and factor rate is that the factor rate is not expressed in percentages like interest rates. The factor rates are shown as a decimal figure. They range from about 1.1 to 1.5 based upon the risk. Again using the example above, we’ll use the $20,000 cash advance amount. Your total repayment is between:
$20,000 x 1.1 = $22,000
$20,000 x 1.5 = $30,000
Fixed Payments vs. Variable Payments
We know your sales fluctuate day to day. Therefore, it’s not a fixed amount of money paid back each day, but a percentage of your sales. This percentage is commonly referred to as the “hold back.” It is the % of future card sales. As a result, it make it hard to calculate the total cost of a merchant cash advance. Use the annual percentage rate calculator below to get an estimate of what you will expect to pay on a merchant cash advance.
Evaluating and Comparing Cash Advance OffersWhen to Consider a Merchant Cash Advance
Whether it’s business loans for cash flow, business cash loans for bad credit or quick cash loans for business, getting money to keep your small business moving along seems like a smart thing to do.
Business Cash Advance vs. Loan
Business Finance 101
Most small businesses get turned down when they apply for a business loan from the bank or other traditional lenders. The reason lies within the current state of our banking industry. Those companies that are approved by a bank must typically repay the loan with very restrictive terms and loan covenants.
If your cash flow fluctuates a lot, as it often does, making those payments can be a significant burden. When you need extra cash flow for your business and need flexibility in paying it back, a merchant cash advance may be the answer.
One month, making the payment might be easy; the next, it might be downright impossible. If you need cash to keep your business moving along for any reason but also need flexibility while repaying the money, merchant cash advance companies like Sunwise Capital may be the answer.
The merchant cash advance from Sunwise Capital keeps individual needs in mind. These advances are fast, easy and flexible–and you can use the money for virtually anything.
When Traditional Bank Loans Don’t Help for Rapid Cash Business Loans
For decades, small businesses in need of a cash advance only had one viable option: apply for a business loan from the bank and hope for the best. Today, banks have mostly moved away from giving loans to small businesses. Unfortunately, the process is more hassle than it’s often worth. Plus, the requirements are too often prohibitive.
To be approved by a bank, you typically need considerable assets and some collateral. Banks often also require a personal guarantee – from all the principals. They also primarily base their decision on your FICO credit score, which prevents many businesses from getting financed.
Merchant Cash Advance: When a Business Loan Won’t Cut It
When small business owners need cash for their operations, they typically turn to traditional business loans first. However, they are overwhelmingly turned down for such loans. Even when they are approved, they often struggle to make the monthly payments.
If this sounds familiar, you’ll quickly see why our merchant advance options are so useful. Merchant cashBEST advance companies have skyrocketed in popularity lately.
In fact, Sunwise Capital has improved upon the standard processes to make getting a merchant advance as quick and convenient as can be.
The Solution? Merchant Cash Advance for Companies with Bad Credit
At Sunwise Capital, a top merchant cash advance company, we created a loan designed to fit your business with small, flexible payments. It’s very simple. A percentage of your daily or weekly revenue is used to make your regular payments.
Merchant cash advances fcan save the day when you’re tight on cash. Whether you need a cash infusion for payroll, to expand your operations, to pay insurance or taxes or for anything else, merchant loans are excellent solutions.
The way it works is simple. As an example, when you apply, Sunwise Capital carefully assesses your company’s cash flow and other factors to determine how much you qualify. You get presented with several merchant advance options with various terms. After selecting the one that’s right for you, your merchant cash advance can fund within just two business days.
Fast Business Cash Advances
No Assets No Collateral No Maturity Date
Unsecured Bad Credit OK Easy
If you’ve held off on taking out a business loan because you’re not sure that your company can afford the repayments, you’re going to love our merchant cash advances. If you’ve held off on taking out a cash advance due to bad credit then you’re going to love our bad credit business cash advance. Your repayments are determined by your daily revenue. On the days when your sales and income are higher, you will make a larger payment.
On the days when your daily sales and revenue is lower, you will make a smaller payment. The repayment manageable and the payments are automatically ACH’d from your account. The days of worrying about having a late payment are over.
Unlike some business cash advance lenders, Sunwise Capital as one of the best online lenders, does not require any collateral or assets to process advances, and there is no maturity date looming overhead. Obtaining a merchant advance is one of the easiest, fastest ways to get cash for your small business. There is no long-winded, stressful application process. The funds typically get deposited in just two days. The loan amounts range from $10,000 to $500,000.
Since we strictly focus on small business merchant cash advances, we can bring you the most competitive rates and terms.
Repayments adjust based on your company’s daily cash flow. These flexible payments will smooth out your cash flow and reduce the struggle to make them.
The sooner that you apply, the sooner you can get the money that you need.
- Imagine time to funding in as little as two business days
- Making variable daily payments or weekly payments (qualified borrowers based on factors including your monthly revenue, business credit, persoanl credit, and months in business) that fit your cash flow
- Getting your funds in two business days
- Automatic payments for no hassle and no worries
- No personal collateral, assets ot traditional guarantee
- No set date to mature means total flexibility on your terms
- Based on your businesses cash flow and overall performance
- Best for last – No penalty to pay off the loan at any time!
Working with a mca provider company like Sunwise Capital means we evaluate the overall picture of your business. Not just your personal credit score.
We’re more interested in the health of your business than strictly your personal credit score. We use a sophisticated cash flow model to advance funds. If you have poor credit or bad credit, no problem.
Once you are approved, Sunwise Capital can typically fund your cash advance within two business days compared to weeks or months from the bank.
Unlike regular bank business loans, which usually have large, set-in-stone monthly payments, you pay back your business merchant cash advance through daily withdrawals from your account.
The amount withdrawn is based on your revenue for that day, so you will never worry about being overwhelmed with a huge payment.
This flexible repayment simplifies the process and helps you smooth out your cash flow challenges.
Cash Advance for Any Reason
- Growth & Expansion
- New Hires & Payroll
- Advertising & Marketing
- Equipment & Inventory (an alternative to equipment financing)
- Renovation & Upgrades
When applying for a traditional bank business loan, you’ll have several hurdles to clear. Especially if you are looking for startup business loans First, you must meet all their general qualifications including personal credit scores, assets, collateral and time in business.
Assuming you make that cut then there are the 20+ documents they require including:
- Past three years’ personal income tax returns
- Past three years’ business tax returns
- Balance Sheet
- Business plan
- Accounts receivables
- Accounts payables
- You get the idea.
Banks like you to have assets or collateral in a 3:1 ratio. This ratio means for every $1 you borrow you must secure it with three dollars in cash or assets.
Let’s assume you need $100,000 for an expansion. According to the bank you need $300,000 in collateral. Guess what?
Here’s the joke.
If you have $300K sitting in your bank account, you do not need to borrow $100K, right?
The next big hurdle is that all your business partners must qualify for the loan. All your partners will need a FICO score of 680 if not 720 or better to qualify for the business loan and they will all be responsible for posting collateral.
Your next obstacle is the reason for requesting the loan. This reason for borrowing must be on the bank or lender’s list of approved reasons. If it’s not, you’re out of luck.
One thing that sets Sunwise Capital apart as a merchant cash advance provider is that we don’t need to approve your reason. It can be for any legitimate business reason.
That’s right, once approved, you can use the cash advance for any business purpose. Need money for marketing or advertising? No problem. How about new hires or tax payments? It’s OK with us.
At Sunwise Capital we base your approval on other factors. There are over 200 in our matrix that helps us determine the approval of your advance.
These factors include the health of your business, cash flow, web presence, time in business, type of business, etc.
At Sunwise Capital, our goal is to connect small businesses with the cash that they need as quickly and easily as possible.
Here is what we need:
- 1 Page Application
- Past three months’ business bank statements
- Past 4 months credit card processors business account statements
- That’s it – 24-hour Approvals
- Funding sent in a little as two business days
If you are looking for the best merchant cash advance company to provide that cash advance for your small business, you can’t do better than Sunwise Capital. Our services are designed to be streamlined and easy.
The entire application process is quick and painless. You don’t even have to leave the office. We fund most advances within just two business days, and we offer advance amounts ranging from $10,000 to $500,000. The entire process is online.