What Do Merchant Cash Advances Cost?
The other difference between a term business loan as a merchant cash advance is that a term loan comes with interest. A merchant cash advance comes with a factor rate and a retrieval rate. The factor rate is the percentage on top of the advance that you’ll have to pay back. Ultimately, your business financing will cost the original amount multiplied by your factor rate. The retrieval rate is the percentage that goes back to the lender until you pay off the entire merchant advance.
For example, let’s say that you have a $50,000 merchant cash advance.
If you have a factor rate of 1.15%, then your ultimate cost is $57,500. That is, this is the amount that you will pay your lender once you’ve paid off your entire merchant cash advance.
$50,000 x 1.15 = $57,500.
Your retrieval rate is the percentage of your credit and debit card sales that your lender will receive until you’ve paid off the full amount. Let’s say, for example, that you make $2,000 in credit card sales on a given day. If your retrieval rate is 10%, then your lender will receive $200 that day.
$2,000 x 0.10 = $200.
Once you know your merchant cash advance amount, your factor rate, and your retrieval rate, then you can easily calculate your costs.