When you use a Merchant Cash Advance, the business gets a cash advance – usually approved and funded in a matter of a day or two – it’s relatively easy and very little paperwork is needed. Of course, you contractually agree to pay back the advance, and the additional agreed upon fee. The funding provider takes a portion of your credit card sales each day directly from your business account, until the entire amount has been repaid.
Merchant cash advancing is a widely accepted way to get quick cash, but it can also be very expensive. Fees range from 15% to 85% APR or higher, based on the amount financed. Funding providers measure their fees naming a factor rate, which can average from 1.15 to 1.50. The amount of advance you receive is multiplied by the factor to determine the total amount you’ll pay back. The Funding Provider accepts your payments as a fixed percentage of your credit card revenues each and every day until the loan has been paid off. Effectively during slower sales months you’ll repay a percentage of decreased receipts, thus less money during slower periods. Repayment periods are usually 8 – 9 months, or as little as 4 months and as long as 18 months. The higher the fixed percentage of your credit card sales sharing, the lesser the time needed for repayment.