How do you qualify for a merchant cash advance?
A merchant cash advance traditionally offers an influx of capital based on a business’s expected credit card transactions over the course of a specified term. For example, if your business receives a $100,000 merchant cash advance with a 52-week term and a factor rate of 1.25, you would have to pay back $125,000 in credit card sales over the course of the next year.
Merchant cash advance repayment generally breaks down into weekly payments, said Randall Richards, director of business development at RFR Capital. According to Richards payday loans Newark, cash advance companies often draw the payment directly from a business’s bank account rather than its merchant account associated with credit card transactions.В
„Weekly payments would be based on sales and a multitude of factors,“ Richards told . „Someone who is only doing $20,000 per month in sales won’t qualify for a $100,000 [advance]. The sales have to support the payment, or else the lender is at risk of losing money.“
Since merchant cash advances are based on sales, borrowers with poor credit can usually access them even when they can’t obtain a traditional loan. Of course, this flexibility means that merchant cash advances are more expensive than bank loans.
„Merchant cash advances are one of the alternatives today for people as they move down and become less and less creditworthy,“ said James Cassel, co-founder and chairman of Cassel Salpeter & Co. „Merchant cash advances could carry the equivalent of 40% interest rates.“
Cassel clarified that merchant cash advances don’t carry an interest rate of their own, but the cost of a cash advance can be measured against the interest rates associated with a traditional loan. That is much higher than the interest rates on many bank loans, which might cost a business with great credit 2% to 5% of the loan’s principal value, Cassel said. Understanding your factor rate and whether you can negotiate it is useful in reducing the cost of a merchant cash advance.
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