A Small Business Owner's Guide To Merchant Cash Advances

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  In this presentation we give a full overview of merchant cash advances. After viewing this presentation you should understand what a merchant cash advance is, how merchant cash advances work, and the pros and cons of using a merchant cash advance to finance your business.
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  • 1. Merchant cash advances The small business owner’s guide
  • 2. What is A Merchant Cash Advance?
  • 3. A merchant cash advance Is when a company receives a lump sum cash payment in exchange for selling a fixed dollar amount of future receivables. Generally the future receivables sold are debit and credit card receipts.
  • 4. They are geared to helping the financial needs Of small businesses with a high volume of credit and debit card receipts. For example, a company might receive a $30,000 payment in exchange for selling $39,000 of their future credit and debit card sales.
  • 5. How Merchant cash advances work
  • 6. Your company and the merchant cash advance provider negotiate the following terms: 1. An Advance Amount 2. A Factor Rate 3. A Retrieval Rate
  • 7. 1. An Advance Amount This is when your company and the merchant cash advance provider negotiate how much your company will receive.
  • 8. 2. A Factor Rate The factor rate times the advance amount equals how much you will need to pay back. For example if you have to pay back $39,000 on a $30,000 cash advance, the factor rate would be 1.3.
  • 9. 3. A Retrieval Rate The percentage of monthly credit and / or debit card receipts that go back to the merchant cash advance provider.
  • 10. The Typical Terms
  • 11. There is no fixed time period for a merchant cash advance to be paid back Because a company’s credit and debit card receipts can fluctuate. However, the payback period is generally from 4 to 18 months.
  • 12. The factor rate can range from 1.14 to 1.42
  • 13. The retrieval rate can range from 5 – 15% According to James Mendelsohn, Chief Marketing Officer at CAN Capital.
  • 14. The pros of Merchant Cash Advances
  • 15. The approval rates on merchant cash advances are high James Mendelsohn from CAN Capital indicated that over 50% of those applying for merchant cash advances are approved by his firm. For restaurants, the approval rate tends to be a little higher.
  • 16. The approval process is quick A merchant cash advance can often be applied for and approved within 1 or 2 business days, with the company providing minimal documentation. A business owner does not need a high personal credit score to get a merchant cash advance.
  • 17. The payment schedule depends on the revenues of the business If business gets disrupted, the business does not need to make payments. Note – Business owners do have obligations when they take merchant cash advances. For example, they cannot purposely steer customers away from paying via credit or debit cards
  • 18. The business owner is not personally liable to pay back The advance if the business goes bankrupt. Unlike many small business lending products, the business owner is not on the hook personally for the merchant cash advance.
  • 19. The negatives of Merchant Cash Advances
  • 20. The Effective Interest Rate Can Be 80% Or Higher The Chief Marketing Officer of CAN Capital argued that talking about an effective interest rate for merchant cash advances is inappropriately comparing them to loans. Read more about the Interest Rate here.
  • 21. If you need to take A Merchant Cash Advances
  • 22. Contact at least two companies and play them against each other. There are hundreds of companies offering merchant cash advances, and they all want more business.
  • 23. Focus on lowering the retrieval rate (instead of the factor rate). By lowering the retrieval rate, a company will reduce the amount of money it’s paying monthly, extend the payback period, and lower the effective APR. Ideally, the expected payback period should be 18 months.
  • 24. If the business owner has a personal credit score above 640, it’s worthwhile to look at term loans instead.
  • 25. Join The Community: www.FitSmallBusiness.com Click here to tweet this presentation. See the full article here
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