Today, however, we are going to concentrate on the MCA. Some business owner’s don’t like them and some absolutely love them. This product is a very efficient way to get cash into your business’ bank account. The lending requirements are not as strict as the term loan or line or credit.
Repayment of the MCA doesn’t have to be complicated either. With the MCA you dont have to worry about what your interest rate will be because you are not charged “interest” per se. You will receive a Factor Rate.
The same goes with a Term Loan for your business. The longer you pay on it the more it costs you. Now, a Factor Rate is similar to the interest rate as it does add on to the amount you are required to pay back. The difference is that a Factor Rate is not re-calculated every time you make a payment. It is a Fixed percentage of sorts.
Example: You get a Merchant Cash Advance for $50,000. To keep it simple they give you a Factor Rate of 10. To figure out what you have to repay you simply take the amount borrowed and multiply it by 1.10. What ever your factor rate is 10, 20 , 45 there will always be a 1.0 starting point. a rate of 45 would be 1.45, 20 would be 1.20 and so on.
$50,000 X 1.45 = $72,500A factor rate of 45 is pretty extreme so you should expect a rate in the range of 10 to 25.
The amount of time it takes to get the funds is much quicker with an MCA than a traditional loan. Term loans can sometimes take several weeks to obtain. MCA’s typically get deposited into your bank account in about 72 hours and the paperwork is substantially less. You need 3 to 6 months of bank statements to show your revenue deposits. They will also be looking at how often you overdraw your account. This is a red flag for lenders as it shows that you cannot manage your finances effectively.
If your business generates most of its revenue via your Point of Sale system then the repayment becomes easier for the business owner. Credit card sales are the optimal way to get and repay a Merchant Cash Advance but, they are not a requirement.
The percentage is generally small, ususally 2% to 5% so, how quick the repayment is depends on your daily sales. This is a huge selling point for most business owner’s like yourself. I mean, who really wants to be bothered with submitting a payment every day or every week until the amount you borrowed is paid back?