A Merchant Cash Advance is a lump sum payment to a business in exchange for an agreed upon percentage of future credit card and/or debit card profits. The way this works is Merchant Cash Advance companies provide funds to businesses in exchange for a percentage of the businesses daily credit card income. This percentage is taken directly from the processor that clears and settles the credit card payment. A company’s remittances are drawn from customers’ debit- and credit-card purchases on a daily basis until the obligation has been met.
There are generally three different repayment methods for the business:
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Government-issued photo ID (Drivers License).
Voided check from your business checking account.
Last three statements from your business bank account.
Last three credit card processing statements.
A merchant cash advance is based on your credit card receivables, so the main way to qualify is to have a steady flow of credit card sales. It is also essential that you already have the capability to process credit card payments, and that these play a significant role in your business.
Just like any other means of financing, there are a couple of questions to consider before applying for a merchant cash advance:
Knowing the answers to these questions will help our business advisors to better serve your unique funding needs.
A First Down Funding merchant cash advance gets you the small business capital you need to grow your business. It’s a simple financing solution based on future credit card sales.
Because of the way that a merchant cash advance works, it makes sense for small and growing businesses that rely heavily on credit card sales. If you have strong, regular sales then you can be confident that you’ll be able to pay back the advance without your business taking the hit.
A merchant cash advance is also a good option if your sales are going strong but you don’t have a great credit history behind you. While you might struggle to get approval for other types of business financing, a cash advance for business might be just the right fit.
For the right business and the right circumstance, a merchant cash advance offers certain advantages over many other financing solutions:
It is important to be clued up about how a merchant cash advance stacks up against other types of financing, so be sure to speak to one of our business advisors to find out whether it’s the right choice for you.
Business owners aren’t always interested in the absolute lowest cost of financing. Sometimes important factors like speed and ease of application are important. However, business owners should understand the financing alternatives that may be available to them.
Although credit cards carry higher interest rates than most term loans, they offer small businesses multiple benefits. For example, a credit card may help a business build its business credit score, and in many cases interest on credit card purchases doesn’t start accruing until the end of a billing cycle.
P2P funding isn’t just for consumers seeking personal loans. Certain P2P platforms offer business loans at rates that range from as low as 4.99% to 29.99% APR. These loans require monthly payments, but they may be funded almost as quickly as cash advances for qualified business owners.
Short-term business funding tend to be a better choice for many businesses. This is due to the fact that many nontraditional funders are voluntarily disclosing APRs, fees and monthly payments. Contact First Down Funding for a full review and consultation about your financing needs
Quick apply with First Down Funding today. We will deliver quickly all financing options and rates available for your business.
Upfront funds: This refers to the cash you’ll get immediately once a merchant cash advance clears. It is the amount of money you borrow in a merchant cash advance. In our examples, the amount borrowed is $10,000.
Price (also fixed fee, total cost): In the following examples, the merchant pays $11,400 to borrow $10,000. That means the merchant must pay back the initial $10,000 plus the $1,400 funding fee. Whether it takes you three months or six months to pay off the funding, the cost will remain $11,400.
Factor (buy rate, cash on): A factor expresses the total cost of the funding as a factor of the borrowed amount. In the second example, we see the factor rate 1.14. This means that the merchant will pay $11,400 to borrow $10,000.
Remittance rate (also daily card sales, percentage payback): The remittance rate is not your interest rate, even though some borrowers think it is. Business owners pay back their cash advances through a series of variable payments. The exact payment the owner makes each day is based on a percentage of credit card sales for the day. In both examples, we see that the merchant agrees to commit 11% of credit card sales per day to the loan. On a day where the merchant takes in $4,000 via credit cards, she will pay $440 toward the advance. On a day where she takes in $8,000 she’ll pay $880 toward it.
Origination fee: Most of the time, origination fees are calculated into the total price of the funding (explained above). However, an MCA Funder could charge an origination fee on top of their factor fee. This drives up the total cost of the funding.
Example 1: Cash advance product priced based on borrowing cost
|Credit score needed||500 FICO|
|Time to get cash||24 hours|
|Percent of daily credit card sales||11%|
Example 2: Cash advance product priced based on factor rate