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Historically, merchant cash advances are used with businesses that have a lot of debit and credit card sales, such as restaurants and retail stores. In recent times, merchant cash advances are an option for many other businesses. Providers for these advances don’t refer to this financing option as a loan. However, a merchant cash advance provider still provides you with an upfront sum of cash in exchange for some of your future sales.
Merchant cash advance repayments can be structured in two ways
Typically, the supplier of the merchant cash advance will provide you with a sum of cash in exchange for your future profits through debit and credit card sales. You also have the option to get upfront cash that is repaid by remitting fixed daily or weekly debits from your bank account, known as ACH, for Automated Clearing House withdrawals.
How would you like a cash advance—approved and funded in just a day or two—with almost no paperwork involved?
That’s what a merchant cash advance is, with one caveat:
This repayment for merchant cash advance loans can occur daily or weekly, depending on what the lessor decided. Rather than one fixed payment per month, the repayment schedule can occur much more often until the loan is paid back.
Percent of credit card sales: The merchant cash advance provider automatically deducts a percentage of your credit or debit card sales until the agreed-upon amount has been repaid in full. Let’s say you need $50,000 to purchase a new oven for your restaurant. You apply and get approved for a merchant cash advance of $50,000. The provider has assigned a factor rate of 1.4 on the contract, so you owe $70,000.
The typical range for the repayment period goes anywhere from three to 12 months. If you have higher credit card sales, you can expect to pay your merchant cash advance loan back faster.
In this case, let’s say your merchant cash advance provider deducts 10% of your monthly credit card sales until you’ve repaid the $70,000, and your busy restaurant averages $100,000 in credit card revenue per month. You’d repay $10,000 monthly, with daily payments of $333 in a 30-day month. At this pace, you’d pay off the advance by the seventh month. But if your revenue dropped to $70,000 per month, you wouldn’t repay the merchant cash advance in full until the 10th month, paying $233 daily.
Fixed daily withdrawals: This kind of agreement lists a daily or weekly payment to be withdrawn, based on an estimate of your monthly revenue. For example, a business with $100,000 in monthly revenue would owe $333 per day or $2,331 per week based on a percentage of sales of 10%.
Although the repayment is usually tied to the credit card and debit card sales, your repayment plan will change depending on your sales. So, no matter how your company’s sales are doing, you’ll still pay back the same amount.
Unlike the repayment structure tied to the credit card or debit sales, your payment does not fluctuate with your sales. That means you’ll pay the same amount regardless of whether sales are down or up.
Merchant Cash Advances & Factor Rates
The amount you will have to pay for fees is based upon your ability to pay back the merchant cash advance. The merchant cash advance provider determines a factor rate — typically ranging from 1.2 to 1.5 — based on its risk assessment. The higher the factor rate, the higher the fees you pay. You multiply the cash advance by the factor rate to get your total repayment amount. For example, an advance of $50,000 that carries a factor rate of 1.4 represents a total repayment of $70,000, which includes fees of $20,000.
The average repayment time frame for a merchant cash advance is 6 to 12 months.
But the term can be as short as 4 months and as long as 18 months, depending on your business.
And the higher the fixed percentage of your credit card sales you’re paying the lender with, the shorter your repayment time—and the tighter your cash flow.
How do you know whether a merchant cash advance loan will make sense?
For more information on the merchant cash advance services we offer through BitX Funding, contact us today. We look forward to helping your business grow and thrive!
A merchant cash advance commonly known as MCA, it is a form of financing that facilitates a company to sell a chunk of the predicted upcoming sales in an exchange for paramount cash or mortgage.
This kind of financing furnishes your company with the funds to pay off the operational and immediate expenses to bolster the growth of their business. It somewhat resembles to pay check advance but the exception for MCA is it only implies to businesses rather than individuals.
A merchant cash advance surely offers a cash advance against future sales. This type of funding is generally available to businesses that possess a steady and constant volume of credit card sales.
Extend MCA Repayment Terms- With Merchant cash advance you are often caught in a death-spiral, that is when the real vultures come out. Extending the MCA Repayment period can make your payments less burdensome and aid from jeopardizing repayments. Propelling a company towards insolvency would more likely deem to make the payments more manageable.
Apply for a Debt Consolidation Term Loan- If you have been making your payments on time or you have just recently started defaulting, then you may get approved for a Debt Consolidation term loan. BitX Funding is always here to rescue you, if you would like to apply for a debt consolidation term loanthen it could be structured over a longer term to reduce your monthly payments.
Asset-Backed Small Business Loans- Companies with fixed assets could use them as collateral for a secured small business loan. Asset-backed loans typically carry a considerably lower interest rate but beware that the assets pledged prior to as collateral can be snatched in case of default.
Consult BitX Funding- Always get in touch with BitX Funding and get a consultation to make your loan program go seamless. If you have been stuck with a repayment dilemma then consult a Bankruptcy Expert and file for Bankruptcy.
Getting a merchant cash advance is genuinely a briskly process, eventually giving you access to a lump-sum amount for your business operations within a few business days after applying at BitX Funding.
If you are approved, you should receive your lump-sum payment. Documentation needed during the application process may include:
● 1+ years in business
● 500+ Credit Score
● 100k Annual Revenue
● Bank and credit card processing statements
● Business tax returns
Merchant cash advances are neither tax-deductible nor the payments that are associated with payback to the cash advance provider. Generally, other loans require interest, however, merchant cash advances do not charge interest, instead cash advances charge cents on the dollar.
Merchant Cash Advance typically depends upon the lender, strength of the business's credit card sales, and usually, the annual percentage rate or total annual borrowing cost inclusive of all the interest ranges from about 15 cents on the dollar to 50%. Advance costs consider the size of the advance, any extra fees, how long it would take to repay the advance in full.
BitX Funding is your online marketplace for small business loans. From SBA, start-up lines of credit, short-term loans, mid-term loans, invoice financing to merchant cash advances and lines of credit, BitX Funding is where lenders compete for your business. Our top-rated lenders focus on real-life business data and cash flow, which means you can qualify for a loan even if your credit score isn’t perfect. What differentiates us from the competition is that with a brief questionnaire our highly trained loan consultant will listen to your needs and match you with the appropriate funding. You can go at it alone and spend hours online trying to find funding for your business or you can have a one stop experience with BitX Funding and our direct connection with the lenders.