A merchant cash advance is the provision of a set amount of funds, determined by your existing credit/debit card payments.
The payments are simple, each day we collect a small % of your sales until the full amount is paid back. That way, we only get paid when you get paid. This makes a merchant cash advance a very cash flow friendly funding tool!
This % is the most important number in determining if this type of advance is right for your business. The withholding % ranges from 4% – 30% of your daily sales, and would vary depending on a variety of factors, including the amount of the cash advance, daily credit/debit card sales, type of company, industry, etc.
NOTE: The withholding % should not be confused with an interest rate. It is the number of your daily sales that gets collected and put towards paying your loan. It has nothing to do with your cost of capital.
The way a factor rate is calculated is as a multiplier of the amount you receive. The Factor rate will typically fall between 1.18 – 1.48.
Your advance amount is multiplied by the given factor rate to determine the total amount that must be paid back. For example, if you’re given $25,000 at a factor rate of 1.30, you’ll need to pay back a total of $32,500 (25,000 X 1.30 = 32,500).
The factor rate is determined based on a large number of factors including industry, Location, Years in business, Number of employees, amount of funds being provided Etc.
As a Merchant Lenders Canada – We use our propriety software to create a credit score for your business (Unrelated to traditional credit scores) and thus determine the factor rate for your business. The longer we work with your business and the more we understand your business’s particular needs, the more funds we will be able to give and the lower the factor rate will go.
Please keep in mind that a factor rate is different from an interest rate in that a factor rate doesn’t take time into consideration. Interest rates are calculated on an annualized basis. In the case of a factor rate instead of a fixed payment, the speed at which you pay back is based on your sales and performance of your business and therefore cannot be computed to an interest rate.
In order to qualify for a standard funding package, your business needs the minimum: