Although business loans are an eventual inevitability for the majority of companies, sometimes all you need is a fast cash advance for operations/purchases. Banks and traditional lenders do not, as a general rule, provide such advances – although there’s a market for it. Since creditworthiness is an essential aspect of the way that lenders do business, it is understandable that a credit score-independent transaction is not palatable to them; it is for this reason that a merchant cash advance is useful as a solution.

Inner Workings of a Merchant Cash Advance

This very rapid way of getting the cash you need starts with an application that could result in remuneration within the very same week that you submit it. This is because the merchant cash advance company doesn’t need to pull your credit file; their recompense for the cash advance will be from your daily sales, via debit or credit card. The amount is intended to cover the principal and interest over a payment period spanning from a few months to a couple of years.

How to Determine Remuneration

How much the merchant cash advance company takes from your daily receipts depends on something called the factor rate; the industry-standard resides in the range 1.1-1.5, with the precise number being dependent on the financial position of your company. Take, for example, a factor rate of 1.25: if you receive a cash advance of $75,000 to improve your cash flow. Then you will end up paying back the lender-equivalent $93,750.

Can You Handle the Regular Payments?

The industry lingo for your payments is called the “holdback rate” or the “ACH MCAs”. It is the percentage of sales, either daily sales, or weekly sales depending on the merchant cash advance company terms. The rate lies in the range of 10%-20%. One of the many benefits of this is that it automatically works with you during seasons of low sales. Since it is a percentage and not an ironclad number; of course, if sales are lower, the payback time will be longer. The ACH MCAS is the fixed payment alternative and is extracted from your business account weekly.

To learn more about merchant cash advances, contact the team at Fortis Funding.