Merchant Cash Advance with Same Day Funding for Small Businesses – What is it?
A merchant cash advance with same day funding is an alternative to traditional borrowing suited explicitly for small businesses that accept credit or debit card payments from their customers. For a merchant cash advance same day funding, a company issues the borrower with a sum of cash repayable using a percentage of the borrower’s credit or debit card sales or a fixed daily or weekly payment. Merchant cash advance same-day funding is suitable for small businesses requiring capital to cover immediate cash-flow shortages.
Here are essential details about merchant cash advances for small businesses:
How Merchant Cash Advance Works?
A business can acquire the funds immediately after the merchant cash advance company approves it for a fixed amount. The issued amount is repayable at a fee using a percentage of the business’s future income. The business owner and the merchant cash advance company can decide to structure the loan in two ways: as a fixed withdrawal from the bank account or as a percentage of the card sales.
1. Fixed withdrawals from the bank account
As a method of repaying the loan, the business can allow the merchant cash advance company to withdraw funds directly from the business bank account.
Depending on the agreement, the withdrawal can be made daily or weekly. This type of repayment structure is not dependent on total sales since the repayment relies on an estimate of the monthly income.
The repayment structure allows borrowers to quickly estimate how long they will need to pay back the amount borrowed. It is an appropriate option for small businesses that don’t heavily rely on credit, debit, and card sales.
2. A percentage of card sales
This is the traditional method of structuring merchant cash advance repayments. The cash advance provider deducts a weekly or daily percentage of the business’s total credit or debit card sales until the loan is completely repaid.
Unlike other sources of finance for businesses, there is no set of repayment terms for merchant cash advances. The repayment period depends on debit or credit card sales and can range from 3 to 18 months. The more credit sales the business makes, the faster it will take to complete repaying the issued amount.
3. Rates and Fees
Instead of the typical interest rate, most merchant cash advance providers charge fees as a factor rate. These rates usually range from 1.1 to 1.5 based on the provider’s evaluation of your business.
Typically, factor rates depend on:
- The business’ credit and debit card transactions
- Personal credit score
- The financial situation of the business
- The industry
- The years the company has been in operation
If a business’s ability to pay seems risky, it will typically have high factor rates. It is essential to note that the factor rate does not comprise additional charges for working with the provider. Charges such as underwriting and administrative fees will only increase the total cost of the merchant cash advance.
How to Calculate the Cost of a Merchant Cash Advance?
To determine the cost of the merchant cash advance, one only needs to multiply the factor rate by the amount issued. For instance, if a business is approved for a $60,000 advance at a 1.40 factor rate, the total repayment amount will be $84,000. This means that the company will be offering a $24,000 discount to the lender for purchasing $84,000 worth of receivables in advance.
To determine the total borrowing cost, it is essential to consider the factor rate and the additional fees in an APR (annual percentage rate). This also helps the borrower determine how long it will take to repay the loan in full.
Advantages of Merchant Cash Advances
A merchant cash advance comes with various benefits, including:
- Accessibility – When applying for a traditional loan, the financial institution may require entrepreneurs to provide a business plan, but most merchant cash providers will not. Depending on the provider’s terms and application process, you can access the funds you need within 24 hours.
- Flexibility – Merchant cash advances are suitable for startups, businesses with previous financial difficulties, and those that can’t access funding from typical financial institutions. The best thing is that companies don’t need to provide collateral. Besides, the repayments depend on the sales, so the repayment is based on the performance of the business.
- Transparency – The amount the business owes does not change. Most providers will inform you about the total cost of the advance at the outset.
- Suitable Alternative to Other Financing Method – Another advantage of merchant cash advances is the creation of a new line of credit. Businesses with different types of financing can still access a merchant cash advance.
Get the Financial Aid You Need from Progressive Business Capital
You can pay for your business’s renovation, equipment upgrade, and inventory with a merchant cash advance. At Progressive Business Capital, we offer a low-risk and fast way to access funds for your business. Visit our website, get a loan offer and boost your business’s cash flow today.