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The merchant cash financing option provides same-day funding for any business with uneven cash flow or seasonal businesses. Ideal for any business with a lot of daily credit card transactions.
A Merchant Cash Advance sometimes referred to as an MCA, a Business Cash Advance (or Cash Advance), is when a company (referred to as merchant cash advance lenders) receives a lump sum of a cash deposit or payment into their business checking account from a merchant cash advance company. The MCA is not a microloan.
In exchange, the business owner or merchant agrees to pay a percentage of their future sales (debit card or credit card sales) until the cash advance is paid back.
The remittance rate or repayment period is either daily repayments or weekly payments. Your company is selling its future credit card receivables at a discount. The result is that the repayment terms are “factored” and is not considered interest. Therefore, technically, this is not a loan. Hence the name “cash advance” and not a cash advance loan
Cash Advance Loans are a reflection of your company’s ability to repay a percentage of sales. It’s based upon your daily accounts receivables and credit card transactions and not your personal credit. Alternative Lenders (the MCA lender or cash advance companies) look at your cash flow, and not your credit history.
The merchant cash advances provide merchant funding anticipating future monthly revenue and future receivables that reflect daily debit and credit card processing.
The result is that repayment is variable as a reflection of daily sales.
A traditional loan offers only fixed payments regardless of the ebb and flow of your daily or monthly business revenue. A fixed payment loan is a term loan. With a cash advance, you are selling your future receivables at a discount.
As an example, with short-term loans, I’ll borrow $100,000 and repay $115,000. The business owner who is looking for merchant cash, will sell $115,000 in future receipts and receive $100,000. One reason for the ease and popularity of receiving the merchant cash is unlike the term loan, approval is typically not contingent on the business owner and his or her credit. As a result, the approval rates are high and it’s quick access to money.
When your daily revenue is low, your repayment for that day will be small. When your revenue is high, your repayment will be larger.
A merchant cash advance may be an excellent option if you need cash quickly for working capital needs, and you know you can pay it back in a short amount of time. For example, making payroll or purchasing inventory that sells right away.
If this sounds like an excellent fit for your business, start exploring different merchant cash advance options that work with your sales and budget. We’ll be here to help.
Sunwise Capital is a leading merchant cash advance company. We offer excellent alternatives to the line of credit.
With this lending model, you receive the cash advances that you need quickly to alleviate cash-flow problems and then repay the funding through variable daily payback based on the ebb and flow of your business.
Everything about the advance is customized to suit your company’s unique needs. Best of all, our business cash advance underwriting and approval process are quick, so you can get the money that you need in a flash.
Since the amount that you are paying is more than the amount borrowed, how do you calculate what the repayment schedule will be?
This factor will vary among small business lenders. The quoted percentage helps 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 processing fees associated with the merchants cash advances terms.
To determine how long it will take to pay back the cash advance, consider 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 of the daily credit card business.
Divide your monthly sales ($100K) by 22 (days in the month). Take that number and multiply it by the holdback. $100K / 22 = $4545 (average daily sale).
Multiply that number of $4545 X 9% = $409. That is 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.
You can use loan calculators to determine your lump sum amount, factor rate, and term to generate the repayment amount. We offer an example below as well.
With this information, you can calculate: approximate daily payments, how long it will take you to repay the loan, and the total amount you can expect to pay
Step 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.
Step 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.
Step 3: To see how long it will take you to repay the loan, take the total amount from step 2, and then divide it by the daily payment (from step 1).
The loan amount or capital for merchants is a percentage of your monthly credit card receipts. This amount 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.
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
The risk to the MCA provider determines the factor rate. One significant difference between an annual interest rate and factor rate is the factor rate is not in percentages like interest rates.
The factor rates show 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
All companies experience ups and downs when it comes to money. That’s especially true for small businesses because they tend to have a lot less “wiggle room” where cash is concerned.
When you need some extra cash to keep your business going, however, taking out a conventional bank loan can be a bit challenging. After all, it means paying hefty application fees, completing a complicated and lengthy application, and waiting weeks or even months for a decision.
By opting for merchant cash advances from Sunwise Capital instead, you can get the money that you need without all the hassle. Simple, straightforward business cash advance loans.
Sunwise Capital, an online lender of merchant cash advance loans, uses a scoring matrix with over 200 variables. On the other hand, traditional bank loans and institutional lenders like credit card companies will just focus primarily on the business owner’s personal credit score at the big three credit bureaus, and secondarily on the other factors.
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We know your sales fluctuate from day-to-day. his business finance alternative is not a fixed amount of money paid back each day like a traditional long-term loan, but it’s a percentage of your daily card sales.
This percentage is referred to as the “hold back.” It is the % of future credit card sales. The result makes it hard to calculate the total cost of a merchant cash advance.
Use the annual percentage rate calculator formula to get an estimate of what you will expect to pay on a merchant cash advance.
Small businesses in need of working capital or a line of credit, only had one type of financing for business operations: apply for business loans from the bank, credit union, or traditional lender and hope for the best.
When applying for business loans from a bank or big institution, you typically must have a “sound business purpose.”
Today, banks have mostly moved away from giving shortterm business loans to small businesses.
Unfortunately, the process to secure traditional term loans is more hassle than it’s often worth. Plus, the requirements and bank covenants are too often prohibitive.
To be approved by a bank, business owners typically need considerable assets and some collateral. Banks often also require a personal guarantee – from all the principals.
Traditional lenders also primarily base their decision on your FICO credit score and business credit, which prevents many businesses from getting financed.
For decades, small businesses in need of an infusion of money had limited financing options: apply for a traditional small business loan and hope for the best.
Today, banks and traditional financial institutions have mostly moved away from providing this business type of funding as the primary source of small business loans. The process is more hassle than it’s often worth. Plus, the requirements and bank covenants are too often prohibitive.
To be approved by a bank, you typically need considerable assets and collateral. Banks often also require a personal guarantee – from all the principals. The banks also primarily base their decision on your FICO credit score and business credit bureaus and not credit card sales. This lending approach prevents many companies and their owners from getting business financing.
Taking out a bank loan or business line of credit can be a gamble. You need a certain amount of money now, but due to the unpredictable nature of operations, you’re wary about being locked into potentially high, inflexible monthly repayment. The chart above on the page shows a comparison of some of the advantages of a MCA vs. a bank loan.
Defaulting on any loan can cause a cascading effect. If you signed a PG (personal guarantee), the merchant could come after your personal assets. Most MCA companies do not ask for that PG.
However, if you switch bank accounts, change your merchant account processor, start taking mostly cash or impede and hamper the ACH payments, this can constitute default.
Apply for a merchant cash advance from Sunwise Capital with no risk, cost, or obligation. 4.8-Star Trustpilot Rating
Get the cash advance you need for your business by applying for Sunwise Capital Merchant Cash Advances MCA today. As online lenders, we can also provide alternative financing as a capital loan, SBA loans, or invoice financing.
When your MCA application is approved, you will receive a lump sum in the form of an advance. Your company’s financial health determines the amount of money you receive. The amount you can borrow reflects your typical credit (and debit) card sales. As little as 50 percent of your monthly sales can qualify you for an MCA, while as much as 250 percent of your monthly sales may qualify.
The owner’s obligation to repay the cash advance is the payback amount. To calculate the payback amount, multiply the amount advanced by the factor rate. Factor rates can range from 1.15 to 1.55
This is the agreed-upon percentage of daily credit card receipts withheld to reimburse the MCA, and this percentage is called a holdback. The holdback can range from 5% to 30%, depending on the strength of your business.
Most MCA lenders review the last 3 months of your company’s business bank statements to calculate your average monthly credit card revenue and project that number into the future.
Payments are made daily or weekly with a merchant cash advance instead of a fixed monthly payment from a bank account until the advance gets paid in full. The fees reflect your ability to repay the merchant cash advance.
Technically, there is no loan involved; instead, there is a cash advance against future credit and debit card sales. Therefore, there is no “daily interest rate.”
A factor rate, rather than an interest rate or an annual percentage rate (APR) on a traditional loan, is used to price a merchant cash advance (MCA). Factor rates can range from 1.15 to 1.55, depending on the type of industry in which the company operates. For the total amount of the loan, multiply the advance amount by the factor rate. EX. Borrow $100,000. To calculate the amount to be repaid, multiply the $100,000 by the factor rate. If the rate is 1.20 (the factor rate) then $100,000 X 1.2 = $120,000.
Merchant cash advance providers automatically deduct the agreed-upon amount from your credit or debit card sales until the agreed-upon amount gets paid in full. A merchant cash advance gets repaid in as little as three to twelve months. If your credit card sales are high, the advance gets repaid quicker. Likewise, slower sales mean a smaller payment and a longer-term to pay it off.
To determine how much your MCA will cost, multiply the total amount of money you received by the factor rate. As an illustration, let’s say you want to borrow $20,000 with a 1.25 percent MCA factor rate. It costs $25,000 to complete your MCA ($20,000 multiplied by 1.25), which includes the $20,000 advance and the fees of $5,000.
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