Merchant Cash Advance - Module 1
A Merchant Cash Advance is not considered a loan, it is the purchase of future sales, which can be in the form of credit card or cash sales. It is a short term liability for the business owner with most terms being from a few months to a year. Credit card advance is exactly what it means, to advance on your future credit card sales, and the amount of money funded is based on the amount of monthly volume. Daily payments are withdrawn from the account as a certain percentage of the volume. The percentage amount stays the same but because of the fluctuation in the amount of sales the amount will fluctuate with daily volume. In other words if credit card sales are $0 the amount withdrawn from your account will be $0. This makes it easier to manage cash flow.
The other type of Merchant Cash Advance is the ACH advance. This is an advance on future cash sales. Based on the qualifications of the business owner, the business industry and the lender a factor rate will be determined which in most cases will run from 1.35-1.5. The term of the loan will also be determined with higher risk advances having shorter terms. What does that mean for payment? Payment is withdrawn everyday (Monday – Friday, 20 days per month) for the term length, so let’s take a look…..
Advance amount $40,000 Factor Rate: 1.42
Term: 8 months
First we take $40,000 x 1.42 = $56,800 (this is the total payback amount)
8 month Term x 20 days in month =160 payment days
$56,800 / 160 = $355 / day taken from business checking daily
With the ACH payment there is no payment change based on daily volume, so whether the business had a bad day or a great day the payment remains the same. But, because this is a purchase of future receivables if there is a substantial turntown in business or act of God shuts down the business for a short time or indefinitely the payments can be lowered or suspended, but the business owner must contact the lender and prove the hardship.
Merchant Cash Advances can be stacked, meaning once the original funding happens another lender will fund additional money in 2nd position and can go as high as 8 positions. This is very dangerous for the business owner, all these daily withdrawals can devastate the cash flow especially when a couple slow days happen. This can set a chain reaction that results in the owner going out of business.
As you can see this type of business funding provides options for the business owner to obtain financing when they don’t have many options, but this type of funding is very expensive. As with any business financing the pros and the cons should be laid out and the pros should outweigh the cons, meaning it should be beneficial for the business. As a business owner, the philosophy should be, use other people’s money to make money and grow your business. So in real talk, interest rate does not matter as long as you can use the money and make more money.
Review and Guidelines
Merchant Cash Advance is the Purchase of future Credit Card Sales or Cash Deposits. This is not considered a loan, thus the terms are based on a factoring figure and a percentage of each days sales are taken directly from the business account until repaid. These funds can be used for any business purpose.
ACH or Credit Card
• Terms 2 months to 18 Months
• Minimum Time in Business 3 Months
• Minimum FICO 500 (Lower FICO’s Available)
• Minimum Monthly Deposits $10,000 (Lower Available)
• Minimum Funding Amount $5000
• Daily Payments (Monday Thru Friday)
• Weekly Payments on a case by case basis
• Factor Rates 1.19 – 1.49
• Positions 1-10
***Lower FICOs and Lower Monthly Volumes are available, but these are out of the norm and are more difficult to fund.
Underwriting MCA’s is truly based on the evidence provided by the Bank Statements or the credit card processing statements. Credit Card MCA’s will fluctuate automatically based on the credit card sales for any given day based on the percentage determined by the Underwriter. If it is determined that a draw of 12% is to be used that means that no matter what the sales are for the day, 12% of the gross credit card sales will be taken until total; repayment is reached.
For ACH or cash deposits, the same amount will come out daily with no regard to the business volume. If business does slow down for any reason the merchant can submit updated bank statements showing that the business volume has slowed and can get a reduction or a temporary relief from the payments until business is restored. It is better for the business to contact the lender, rather than defaulting. Because ACH MCA’s rely on the deposit amounts made, the daily balance is an important factor to assure that the merchant will have enough cash for the ACH withdrawal each day.
Just A Quick Overview
• No open Bankruptcy (Documented as Discharged)
• Maximum of 7 days Negative Balance of NSF’s
• Minimum of 4 – 7 Deposits per month
• Must be current on Rent
• No Prior Defaults on other MCA’s
• If Seasonal provide 12 months bank statements
• Declining sales is a red flag unless seasonal
×Car Services (uber, Lyft)
×Consumer Debt Counseling
×Virtual Currency Exchanges
Although we strive to fund every Business, the businesses on this list are virtually impossible to obtain financing for. If you happen to run across one of these business owners, an alternative route is personal financing.
Items Needed For Submission
- Submission Form – Make sure to tell anything that might help us structure the deal the right way. This form should be used as your intake form as you are discussing option with the business owner.
2. Application – complete
3. 4 Months Bank Statements and/or Processing statements (if seasonal 12 months) All Pages 4. Drivers License
5. Voided check
6. Corporate Docs / signing authority
Submitting a complete package allows for faster decision times and higher cash approvals.
Merchant cash advances are of great benefit for a business that needs money fast. Many times we can get that business funded in as little as 24 hours. It provides an outlet for a business owner with poor credit, lacking financials, a way to grow and expand their business, or get them through a rough time, like making payroll or covering over due business debt. Retailers may be able to buy bulk inventory at a heavily discounted price, a restaurant may be able to open up a new location, a construction company can start a new project, a landscaper can buy new equipment, whatever the needs may be.
The next module will talk about a slightly different alternative to MCA’s with a program that provides monthly payments and up to ten year terms. If you are interested in obtaining financing for your business or you just have questions, please contact us at firstname.lastname@example.org. Remember at Ebizmore you will Learn More, Do More and Earn More.
No Income No Asset Personal Lines of Credit for….
Startup, New Businesses or Personal Use
Funding Up to $250,000
Fund starts in 7-10 Business Days.
NO INCOME DOCUMENTATION
BK must be over 4.5 years
Collections, Judgments, Late Payments must be over 12 months
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