The Lowdown On Merchant Cash Advances

If you’re a female entrepreneur in the U.S. today, and are searching for some means to fund your venture or tackle an emergency situation that has arisen within your business, you’ll doubtless already have browsed your options online. During your search, you may have found traditional loans from banks, instalment loans or credit cards for small businesses, but you may not have discovered an alternative model for financing known as a merchant cash advance. 

Read on to find out more about merchant cash advances and whether they could help you fund your business.

What exactly is a merchant cash advance?

MCAs enable small businesses to borrow a sum of money in a lump amount that they can use for any purpose, and pay the lender back with a percentage of their credit card transactions in the future. 

Things to think about when applying for an MCA

Just as applies with all forms of financial loans, you should carefully consider how much you’re likely to qualify for, the terms of repayment, whether any kind of guarantee is necessary, the approximate APR and how quickly can you receive the funds. 

What does failure to pay an MCA result in?

You are at risk of being sued if you break the terms of your contract, so it’s advisable to be open and honest with your lender as to your capabilities of repaying the loan should you encounter unanticipated problems; payments and schedules may be negotiable. 

What is a merchant cash advance calculator?

An MCA Calculator can help small business owners determine whether they’re actually getting a good deal with a merchant cash advance. This is often tricky to ascertain as a result of the non-traditional format method used to determine fees and collect repayments. 

With the help of such a calculator, you can arrive at an approximate figure for daily repayments, and how many days it will take you to repay it. Additionally, it can give you some other important details about the loan, such as:

  • Amount advanced: expressed as a dollar amount, this is the figure the merchant receives from the MCA lender. 
  • Payback amount: expressed as a dollar amount, it’s the total needing to be repaid to the MCA lender
  • Factor rate: written as a decimal and not a percentage, this multiplier is used to arrive at the payback amount
  • Administrative cost: expressed as a dollar amount, this refers to the fees the MCA lender will deduct from the advanced amount before they send it to you. 
  • Monthly credit card sales: expressed as a dollar amount, these are your monthly credit card sales averaged out
  • Percentage of sales withheld: expressed as a percentage, this is the amount withheld from your daily sales by your chosen MCA lender. 
  • Approximate daily repayment: while this number will fluctuate, it can help you determine how much you’ll need to pay back every day. 
  • Approximate days to repay: again, while the numbers may fluctuate according to your sales, this figure gives you an idea of how many days you will be able to repay the loan in
  • Effective APR: this stands for the Annual Percentage Rate
  • Financing cost: inclusive of the factor rate (fixed fee), this gives you the amount you’ll need to pay in fees for your advance
  • Total repayment: this includes the fixed fee, advanced amount and all administrative costs and is the total amount you’re required to pay
  • Cents on the dollar: what you pay in fees for every dollar borrowed 

Knowing whether business loans for women or merchant cash advances are the right kind of loan for your business, isn’t always easy, but by using an online calculator, you can at least come to a decision from a place of knowledge and understanding. 

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