Fund projects and purchases that drive your business forward.
A merchant cash advance has historically been for businesses whose revenue comes primarily from credit and debit card sales, such as restaurants or retail shops. Now, merchant cash advances are available to other businesses that don’t rely heavily on credit card or debit card sales. Merchant cash advance providers say their financing product is not technically a loan. A merchant cash advance provider gives you an upfront sum of cash in exchange for a slice of your future sales.
Merchant cash advance repayments can be structured in two ways
You can get an upfront sum of cash in exchange for a slice of your future credit and debit card sales, or you can 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:
Instead of making one fixed payment every month from a bank account over a set repayment period, with a merchant cash advance you make daily or weekly payments, plus fees, until the advance is paid in full.
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 repayment period typically ranges from three to 12 months; the higher your credit card sales, the faster you’ll repay the merchant cash advance.
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Fixed daily withdrawals: This kind of agreement lists a daily or weekly payment to be withdrawn, based on an estimate of your monthly revenue.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%.
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
How much you’ll pay in fees is determined by your ability to repay 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 will make sense?
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.