Merchant Cash Advance APR Calculator
A merchant cash advance (MCA) is a type of funding in which a business sells a percentage of its future credit and debit card sales for an initial amount. It is not a loan.
A portion of your company’s debit card and credit card receipts are automatically debited each day during the repayment term. Some common providers of cash advances to merchants are Can Capital, Credibly, and RapidFinance.
An MCA is beneficial for businesses with volatile cash flows or seasonal economic cycles because your refund is not a set amount charged each day, but a percentage of your credit card sales. However, this can make it difficult to calculate the total cost of a merchant cash advance. Use the cash advance calculator below to find out what you’ll pay on a merchant cash advance transaction.
What is a merchant cash advance?
It is important to understand that a merchant cash advance is not a loan. This is a cash advance with a credit limit based on your average daily balance of credit and debit card sales. Unlike a lender who takes a fixed payment each month (including principal and fees based on the agreed interest rate), the repayment is a part of your daily card sales, so what you pay will change dramatically. day to day.
Similar to a payday loan, a merchant cash advance is a short-term financing solution that may come with a higher price than other options.
How do I calculate the total cost of my merchant cash advance?
It can be difficult to determine the interest charge you will pay for a cash advance from a merchant because the charges are usually listed as a factor rate.
A factor rate is a multiplier of the amount you have advanced. Let’s say your cash advance charge has a factor rate of 1.5 and you have a cash advance of $ 50,000. To calculate the total you will repay, multiply the advance and the factor rate:
50,000 × 1.5 = 75,000
With this example, you would pay a total of $ 75,000 for a merchant cash advance of $ 50,000. If you were to translate this into a interest rate, it would be 50%, a much higher finance charge than what you would pay with other types of financing.
Unfortunately, there’s no easy way to calculate your monthly merchant cash advance payment amount, as it’s based on your daily credit and debit card sales, and these fluctuate. probably.
Who should purchase a merchant cash advance?
If your cash flow and income are volatile, a cash advance from the merchant can ensure you never pay more than you can afford for your funding each day. If you were to take out a traditional loan, the lender would offer you a fixed monthly payment, and if you were unable to make a payment, you could default on your loan. This cannot happen with a cash advance from a merchant, as long as you are making credit or debit card sales.
Additionally, if you’ve struggled to qualify for other types of financing, an MCA might be a good option, despite the steep price tag.
How does a merchant cash advance compare to other financing options?
Certainly, there are cheaper financing options than the merchant cash advance with its high cash advance fees.
A traditional loan, whether through a bank or a credit union, has a more regular repayment schedule, and your the interest rate can be fixed or Variable APR.
A credit card can have a annual percentage rate to a cash advance from the merchant, although you can find a card issuer that offers a 0% Intro APR or low interest credit card if you have good credit.
If your business isn’t established enough to qualify for financing, you may also want to consider a personal loan if your credit is good, or turn to payday lenders if you’re in trouble (but know you’ll pay dearly. to access this capital).
Nav has several loan calculators you can use to weigh one type of financing against another to choose the one that best suits your needs.
Are cash advances bad for your credit?
Like any loan or type of financing, cash advances from merchants can affect your personal or business credit rating. They can be declared as debt, and if your debt to credit ratio gets too high, your credit score can be lowered and it can be difficult to qualify for other types of financing.
Plus, if you don’t make the minimum payment on your advance (which should come from your card sales), you might see your credit rating down as well. On the other hand, if you repay your advance on time, it could increase your credit rating.
How to avoid paying interest on a cash advance?
While you probably can’t avoid all cash advance fees, you may be able to reduce the fees you pay simply by allowing the merchant’s cash advance provider to take more of your sales through. debit or credit card for reimbursement each day.
It may also be possible to make additional repayments on your advance to reduce the amount you pay in interest or fees over time.
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