How Does a Merchant Cash Advance Work?

You own a successful bistro – and the chance has come up for you to open a second location at a major real estate discount in an up-and-coming part of town. Or you’ve had a rush on your products and now you don’t have enough in the warehouse to keep the orders coming. Or a fire just devastated your warehouse, and you don’t have time to wait for the insurance check to keep things going. You’re not the first business owner who has seen a need for quick cash. However, if you don’t have collateral or if your credit is iffy, a small-business loan may not work for you – and even if your credit is solid, the banks like to take their time issuing financing. This is when you should consider a merchant cash advance.

Why? Approval rates for merchant cash advances are much higher than for small business loans, and you have the money a lot sooner. The cost of the money can be a lot higher – a rate factor of 1.40 of the advance (so if you took out a $50,000 advance, you’d end up paying back $70,000 in that case) – but rate factor can be as low as 1.15% if your risk profile is lower. And if the money ends up giving you that shot in the arm that you needed, it’s a lot better than having to close the doors.

So here’s how it works. When you take out a merchant cash advance, you have to pay it back out of your daily debit or credit card sales. A traditional loan requires payments on a set schedule (weekly, bi-weekly or monthly), but you make a merchant cash advance payment every day on which you conduct business. A percentage of those card sales goes to the lender each day.

So you want to get a merchant cash advance to help you with the cost of opening that second location of your bistro. You have some of the money on hand, but you get approved for a merchant cash advance of $75,000 to help out. You have a factor rate of 1.3 (meaning that payback is 30%), so your total loan cost will be $22,500. This means that you’ll be paying back a total of $97,500. Generally, merchant cash advance lenders use a schedule of nine or ten months for the repayment, so they set your approval amount (and your daily percentage withdrawn) on how much you can afford to pay them back each day until you have the loan settled. Obviously, the more you sell through debit or credit cards, the faster you’ll pay the advance back.

Now, let’s say that the withdrawal rate is 10%. If you make $1,000 in credit and debit card sales on a particular day, then you get $900, and the lender gets $100. If you make $100 in credit and debit card sales, you get $90, and the lender gets $10. So when you have big days, you make a bigger payment, but when things aren’t so flush, you don’t have a fixed payment that will eat into your cash flow. 

One thing to watch out for when you sign your contract is automatic re-advances. Obviously, there are some companies who start out on their payment plans and realize that they need more money than they thought. So they go back to the lender and ask to advance more money, back up to their original amount. So if you took out that $75,000 for that second location, and you’ve paid back $40,000 of the $97,500, you still owe $57,500 – but then you realize you need to upgrade the oven in that second location, so you go back and get more money to go back up to a $75,000 balance to help with the purchase. There’s nothing wrong with that – but you need to watch out for automatic re-advances. Some lenders put provisions in that if you pay off a certain amount, you get more money to go back to your original balance. If you need the money, that’s one thing – but it is an expensive form of lending, so if you don’t need it, you shouldn’t have to pay for that financing.

At Amansad Financial we stand ready to help secure your merchant cash advances and we look forward to working for you!


How to Get a Business Cash Advance

You’ve just gotten the visit that every restaurateur dreads – the Health Department has come and located a nest of cockroaches in one of the walls of your kitchen, and they don’t like the cooling mechanism in your walk-in refrigerator because it’s not quite keeping the food cold enough. You’ve had a ton of new business in your Asian fusion restaurant in the year since you opened it, and you’re thrilled at the money rolling in. You don’t have much time to make the changes before the Health Department returns, and you put almost all of your savings into just getting the restaurant open in the first place. You need a business cash advance fast – so how are you going to do it?

You can go to the bank, but even if you have solid credit and some other collateral to put up, you aren’t likely to get the money for a few weeks, if not longer. Meanwhile, you have to get those problems fixed in your kitchen, or the Health Department will shut you down, and that is a death knell for a restaurant. 

This is where a merchant cash advance can be a lifesaver for a small retail business. The application process is quick, approval rates are much higher than they are with small business loans, and you get the cash in a matter of a few business days.

What are the important numbers? First is your record of credit and debit card sales. The lender will look at how much you have coming in each week and each month via cards – because that’s how you will pay the lender back. Each day, a percentage of your debit and credit card sales will go to the lender to make part of the payment. Next is the percentage that those sales make of your total sales. In a restaurant, it’s likely that the vast majority of your sales come through debit and credit cards, because people find it a lot easier to plunk down a card and then scribble in a tip than put down cash and wait for the change to come back, and then do the math on that tip – and not as many people are carrying cash these days. The lenders also look at how long you’ve been in business. If you’ve been open just a few months, you’re a lot bigger risk than if you’ve been open a year, and it’s even better if you’ve been open a few years. Obviously, the Olive Garden isn’t going to take out merchant cash advances, though, so you don’t have to have 30 locations and a 10-year history as a business to qualify.

Once the lender has these numbers, then you can get an estimate of how much you can borrow – and how much it will cost you over time. Your application will be assigned a factor rate, generally between 1.2 and 1.4. That tells you how much you’ll have to pay back. If you are approved for a $50,000 merchant cash advance with a factor rate of 1.2, you’ll have to pay back $50,000 X 1.2 ($60,000) in total, and they try to set the repayment schedule anywhere between six months and a year. So you can get that $50,000 business cash advance fast, but then your credit and debit card sales will have that percentage (10% is a typical amount) withheld each business day until you’ve paid back $60,000.

This is great news if you’re cash poor and don’t have much in the way of collateral. If you have a slow day, you won’t pay as much back. If you have a flush day, you’ll have more to pay back with anyway, and you end up bringing your balance down a little bit more.

Merchant cash advances are another way for us to help small businesses grow. Let us help you determine whether the advance is the best choice for you – and the best way to structure it. Give us a call or email today.


Bad Credit? Merchant Cash Advance Options For You

When you don’t have good credit, it can seem like everything is lined up against you. The banks don’t seem to have any problem lending to business owners with blue-chip credit ratings and collateral all over the place, but if you’ve been in to see a traditional lender about taking a loan out for your small business, and you have any hiccups at all on your credit score, it seems like you have to jump through a ton of small hoops – and even then you’re likely to see your application get denied.

While credit scores do give lenders a number to standardize the application process, it is also true that every credit score does not have the same story behind it. It’s true – some people just don’t pay their bills. They live beyond their means, month after month, and they pay the price because they can’t have access to any credit when they need it. However, there are other people who have solid spending and credit habits but have gone through such situations as a nasty divorce or a lengthy illness, and they fell behind on their bills – and their credit score hasn’t had much time to rebound.

When you open up a small business, you’re taking a risk – but you’re also trying to make your own dreams into a reality. Maybe you had a vision for the next great fashion boutique, or the next great way to turn seafood into gustatory beauty for your customers. Once you get that business up and going for a few months, or even a year, and then you run into an opportunity to get that business over the next hurdle as far as growth goes, sometimes you need an infusion of cash. If you still have some credit issues in your past, it can be difficult to pry those loan funds out of the hands of your bank. 

That’s where a merchant cash advance can come in handy for business owners who are doing well and have a strategic plan – but need some funding to get to the next stage in their business. Remember that fashion boutique? Well, let’s say that you’ve been working in a fairly small location in a gentrifying area, but money is pouring in, but you know that you could really take off if you moved into that space down the street that is three times as large. However, the rent is higher, and you’ll need to hire a few more people to keep service where it needs to be.

So you go to the bank, but they point to that repossessed car from three years ago. You and your boyfriend bought a car together, and he promised to make those payments, but he didn’t, and you didn’t know a thing about it until the tow truck showed up in the driveway to haul it off. Now that is a big hole in your credit report, and it will be for four more years.

Don’t let that keep you from expanding your store. When you take out a merchant cash advance, you’re not dealing with fixed monthly payments. Instead, the payments come out of the debit and credit card payments that you take in, and they are a set percentage. So if you sell $3,000 in clothes one day, and your repayment percentage is 10%, then you would get $2,700 from your sales, and $300 would go to the lender. If you don’t have a busy day, and you only sell $450 in clothes one day, then you only pay $45 to the lender.

The cost of the money is more than what you would face with a small business loan. If you take out a $50,000 merchant cash advance, you can expect to pay back between $60,000 and $70,000 in principal and fees. But if you have a strategic plan in place, and if you end up making a ton of money in your expanded store, it will have been worth it.

Once you know how you want to put your merchant cash advance to work for your company’s growth, get in touch with one of our cash advance experts. We will put together a package that helps you – and has payments you can afford.


The Latest Merchant Cash Advance Information

When you’re operating a small business that you started with your own savings, you take special pride in its daily successes – and you take the most discomfort when things go awry. So when you see threats to liquidity keeping your business from being its best, it’s natural to get frustrated.

Small businesses have a difficult time getting what they need from traditional lenders. Banks have always been leery of the small business loan business, because banks only like to lend to “sure things.” That’s why they don’t like to extend mortgages to people with credit blemishes and who can’t demonstrate a solid, reliable income stream (have you ever tried to apply for a traditional mortgage after starting your own business, even if your business is a rousing success?).

So if the coffee shop that you and your friend opened has become one of the trendier places in your part of town and you’re thinking about expanding to that new space that just opened up when that awful Vietnamese restaurant with the terrific location closed down the street, but you’re wondering how you’re going to pay to renovate the interior, that is when merchant cash advances can come in handy.

Don’t get us wrong – one of the most important pieces of merchant cash advance information that a lot of brokers will leave out is that they’re expensive – more so than small business loans. If you take out a $50,000 merchant cash advance, you’re going to have to pay $60,000 – $70,000 back over time to satisfy that debt.

Why? Because you do represent a risk with your credit blemishes – and you aren’t securing the loan with any collateral or any assets. Instead, the lender is betting that your credit and debit card transactions will continue to bring in enough money to keep your business up and running – while also allowing you to pay back the advance as time goes by.

Here’s how it works. Let’s say that you take out a $60,000 cash advance to help pay for renovations at that Vietnamese place so you can transform it into that cool sports bar that you were envisioning in your own location but simply didn’t have the space to achieve. The lender liked your risk profile, so they gave you a factor rate of 1.2, which means that you’ll be paying back $72,000 over the next few months. The contract required that you pay back 10% of your credit and debit card sales each business day until you pay off the note.

After approval, you get the money within a few days, and then the payments begin. (NOTE: Do not sign a contract with a company that wants to put the money into escrow and then distribute your share to you or who wants to have your credit card company run a “split settlement” system. Either of this will delay your money coming to you. Amansad Financial does not deal with lenders who require these provisions.) Let’s say that 10% of your daily card sales are supposed to go to satisfy the note. So if you have a huge Saturday night and make $12,000 in card sales, then you get $10,800, and the lender gets $1,200. But if there’s a really slow Monday and you only bring in $1,500, then you only pay the lender $150 – and you get the other $1,350. So you make steady payments without having a fixed dollar amount that can cripple your cash flow.

Amansad Financial recently added merchant cash advance information and services to its list of financial brokerage services, because we are committed to helping individuals and businesses gain access to the money that they need at terms that are fair and reasonable. We have a number of commercial clients throughout Canada who keep coming back to us for their financing needs because they appreciate our approach to customer service. Yes, we make money from finding loans for our clients, but we also vet our lenders carefully and only connect clients with lenders who use ethical practices in their disbursement of information and customer service protocols.

Would your business benefit from a merchant cash advance? Call or email one of our professionals to find out what this can do for your company.


How Merchant Cash Advance Rates Work

One of the most common questions that we get from potential merchant cash advance clients is how much money they can get from an advance. Right after that, the next question is usually how much the money will cost, or what the interest rate will be.

This is a smart question to ask – after all, money that comes quickly (within a few business days) and without any concrete strings (no collateral or assets) brings a good deal of risk for the lender. Also, if a business owner has pristine credit and a standing history of successful operations, then he’ll be able to get financing at a lower rate from a bank. 

Of course, that leaves a lot of people out in the cold when it comes to financing. If you worked for twenty years as a firefighter, retired, and then decided to put your savings into opening a restuarant, and you’ve been open for about a year, even if your bar has done well, you could have a tough time getting a bank to finance a major expansion for you. Your business will only have been open for a year, and even though firefighters are important members of the community, it is unlikely that you got wealthy in that career field. And if you got a divorce five years ago and fell behind on a number of your bills, leaving your credit in a bit of a mess, then you’re even more behind the 8-ball.

That’s why merchant cash advances became popular – they are a way for lenders to invest in small businesses where the owners can’t get the answers they want from the banks. But with that increased risk of a merchant cash advance comes an increased expense.

Merchant cash advances come with what is called a “factor rate.” Generally, this will be between 1.2 and 1.4. The lower the risk profile, the closer to 1.2 a factor rate will be. The higher the risk, the more likely it is to spiral up toward 1.4.

What does a factor rate mean? Well, you multiply your advance amount by that number to see what you’ll be paying back over time. So if you take out a $75,000 merchant cash advance and you have a risk profile that is on the low end, you could get that 1.2 factor rate. So $75,000 X 1.2 = $90,000. That means that you’ll get $75,000 within a few business days, and over the repayment term, you’ll be paying back a total of $90,000.

Is that a lot of profit for the lender? Well, yes. If you pay it back over six months, that is the same as a 40% simple interest rate. But there are a couple of reasons why this still makes sense for many small business owners.

  1. You don’t have fixed payments. Each business day, a set percentage of your credit and debit card sales go to the lender. Ten percent is a fairly common number for this. So if your bar brings in $8,000 on a Thursday night, you get $7,200 and the lender gets $800. If you have a really slow Monday night and bring in $900, you get $810, and the lender gets $90. So the payments shift with your business level, which means that your cash flow is not at risk at the same level it would be if you faced a set monthly payment.
  2. There’s no collateral. You don’t have to put any of your own personal or business assets on the line with this sort of loan. So if business slows to a crawl, so do your repayments to the lender – and it doesn’t hurt your business or personal credit.
  3. You get the money quickly. After a few business days, or sometimes a week, you have your advance in hand. You don’t have to wait several weeks for the banks to pore through all of your paperwork and then finally hand over a check. Generally the only paperwork required is credit card income receipts and bank statements. 

Are you interested in learning about how a merchant cash advance could help your business? Get in touch with us at Amansad Financial to learn more about how we can work with your company.


Merchant Cash Advance Info: The Pros and the Cons

You wake up in the middle of the night to get a call from the guy who runs the convenience store across the street from your sushi bar: your place is going up in flames. Even though you can’t do a lot but watch the firefighters put out the blaze, you still throw on some clothes and hurry down to the spot because this is your business, these are your dreams that are at risk. You have the place properly insured, but you know that there’s still going to be a slowdown while things get put back together.

Then you start thinking about that gourmet Chinese restaurant a few blocks over that just went under – you just saw the “For Lease” signs in the window last week. It’s bigger, it’s closer to an area that is gentrifying, and you think it could be the perfect opportunity for you. However, you know the rent is going to be higher, and you will have to hire some more wait staff to keep the service level where you want it. The insurance will cover your costs with the building and give you some money to replace the income the restaurant was bringing in.

So the next morning, you’re in the office at your bank. You’ve had your own checking account there since you finished high school and left home, and you’ve had your restaurant’s accounts there too, so it seems like the natural place to talk about a loan. However, since your sushi bar has only been open for a little over a year, even though it’s been doing really well, the bank doesn’t want to help out a restaurant that has not been open that long and now is going to have to go through the expense of a move. Even with the insurance money coming in, the bank sees you as too much of a risk, and you walk out the door a lot less satisfied with your customer service experience than you were when you walked in.

Situations like this are why merchant cash advances came about in the first place. They offer high approval rates and bring you the money within a few business days. However, they cost you more than a bank loan will, so there are drawbacks to go with the advantages. Let’s take a look at what a merchant cash advance has to offer – and why you should think twice before taking one out.

Pro: You get your money quickly. Banks make you wait several weeks for approval on a loan. With a merchant cash advance, all the lender has to look at is your bank statements and your credit card income receipts, so you can get approval (and funding) within a few business days.

Con: Your APR could be high. Once you roll in all the fees and interest, you could be looking at an APR between 30% and 300%, depending on the lender, how much money you are taking out, the amount of time they plan for you to repay, and depending on your own risk factors (amount of time open as a business, for example). Business credit cards (12.9 – 29.9% APR) and online small business loans (7% – 108% APR) are often available for less.

Pro: Your payments aren’t fixed. You don’t face a monthly minimum payment on this sort of loan. Instead, you pay a percentage of your credit and debit card sales each day. That means that you don’t have a big check to write, whether you have the funds or not. Instead, when you have a strong sales day, you make a larger payment. When you have a slow day, you still get the same percentage of your sales that you would have on the big day.

Con: There is rarely no benefit to early prepayment. When you sign the agreement, your repayment amount (which includes interest) is set. This is different from a loan that allows you to pay extra principal with each fixed payment when things are flush.

Bottom line? If you have a strategic plan to put a merchant cash advance to work for you, it can be the boost of cash that pushes your business to the next level. After all, if you move into that new space and business doubles, will you really begrudge those payments you had to make? Absolutely not. If you think this might be a good idea for your own business, give Amansad Financial a call today.


How to Secure an Online Merchant Cash Advance

One of the advantages of the Internet is that it makes acquiring just about anything a lot easier – and a lot faster – than it used to be. Want to buy a car? You can shop online, putting together what you want on a dealership’s website, and then you can go pick up the car. Much of the time, you can even handle the price negotiations online without having to wait in a salesperson’s office while he pretends to be going to talk to the manager so that you’ll accept that slightly higher price.

Even in the world of business lending, you can get the money you need online without having to spend a lot of time in a bank manager’s office. Amansad Financial has an online form that you can fill out in order process things quickly– but even if you choose another company, you’ll find that many of them offer online forms.

Here’s how it works. The form asks for such information as your monthly credit card and debit card sales, as well as your overall sales (total with cash and check sales as well). The form also has fields for the amount of time your business has been open as well as your current cash balance. Once you fill out this information, you can get a quote within a matter of minutes. This is not a binding quote – you will have to submit information verifying your claims to the lender – but you can complete the entire process from your office (or even your kitchen table). Once you’ve submitted everything, the lender can then send you your money within a matter of business days. The whole process went smoothly – and you didn’t have to go in to visit a lender. In some cases, the lender may call you after you’ve submitted the information to ask some follow-up questions, but you still have the convenience of completing this from your home or office.

In addition to online convenience, there are some other advantages to being able to take care of your business’ funding needs with a merchant cash advance. Quick access to funding is one of the major benefits that many of our clients have noticed. Once your application has been received and approved – which generally happens within a few business days – you will have your money in hand. Sometimes this takes as long as a week, but this is still faster than what you will get from a traditional lender. Obviously, you’re not having to submit as much paperwork, but banks generally just tend to move more slowly anyway.

Another benefit is no fixed payment schedule. You pay back a percentage of your debit and credit card sales each business day. So if you have a huge day in terms of sales, then you pay back a larger amount. But if you have a slow day, then you still pay back that same percentage. Obviously, you’d like to make more money each day, but if you take longer to pay back the money through your sales, then it doesn’t cost you any more money, and it doesn’t affect your credit. So you don’t have any other assets on the line, there is less pressure with this sort of loan than there is with a weekly or monthly check that you have to send to a lender.

Merchant cash advances are not the only funding vehicle out there for small businesses. There are lenders who specialize on online business loans, and there are also credit cards tailored to businesses. However, if your credit is not where it needs to be to qualify with a traditional lender, and the limits that you can qualify for with a business credit card aren’t what they need to be for you to be able to take the next step that the advance would give you, then you’ll find that the advance was worth the cost.

Do you have more questions? Give one of our merchant cash advance experts a call or email today!


Taking Out Merchant Advance Loans

You saved two-thirds of every paycheck that you brought in during high school, and you ate a ton of ramen noodles while you were working your way through college. Why? Because you had a dream of opening your own fashion boutique once you finished your degree in design. You would sit up late at night, sketching out your designs, and in between classes and heading to your own job, you were busy finding ways to get them shown off in other stores.

Once you graduated, and some of your designs had found their way onto shelves in clothing stores – and you found that people were buying them – you took the leap and opened that store of your very own. You hired a fairly small sales staff to keep your overhead low, and over the past two years, you’ve built up a small but devoted customer following, and you’ve found that your revenues have increased by slow but steady amounts.

Your location is not bad, but it’s not ideal. It’s about six blocks away from where gentrification is happening. So the people who know where to find you can come to your store, but you’re confident that if you moved just a little bit closer to the streets where people walk up and down on Saturdays and Sundays, looking for places to spend their money, your business would really take off. You’ve heard of another clothier moving out of a space that would be perfect for you.

Here’s the problem – you’ve done well, but not well enough to handle a rent that would be about double what you’re paying now. You’d have to hire a few more salespeople, and you’d have to boost your inventory a bit in order to make the store pop. You’d also have to invest a little more in displays. You have some savings, but you’re not convinced that you have enough to make the jump without taking those savings down to the point where you would only have a couple of months in reserve.

So you go to the bank, and you apply for one of their small business loans. When they pull your credit, the first thing they ask you about is that car that you had repossessed while you were in college. You explain to them that you bought a car with your best friend, and that you had co-signed the loan so that she would get approval, but that she had promised to make the payments, but she simply hadn’t and you hadn’t had the money to make the payments yourself. In fact, you only found out about the situation when the car was gone and you got a letter demanding the full payment of the amount due in the mail.

The bank officer looks sympathetic, but you know you’re not getting this loan. So how can you get a merchant capital loan in a situation like this?

You’re not alone in this situation. Small business owners just like you are the life blood of the local economy in Canada. Without you, a lot of the creative ideas bubbling around in people’s heads would never make it out into the world, and we’d be stuck buying our clothes on the basis of what Banana Republic, Old Navy and Wal-Mart think we ought to wear.

The merchant cash advance is designed to help small business owners get access to the sort of money that they need to make major changes in their business even when traditional lenders won’t approve their applications for funding. So you can get as much as $100,000 in some cases for the changes that you need to make to your business. In return, you pay a percentage of your credit and debit card sales each day until you pay back the principal plus interest and fees.

The best part about this loan is that you’re not adding another monthly payment to your budget. Instead, it just comes out of your sales. If you have a big day, you pay more. If you have a day where it’s mostly window shoppers coming in, then you just pay that percentage of what your card customers paid.

Curious? Need more information? Contact Amansad Financial with an email or call today. We are ready to assist.

Get Started Today with our Fast Pre-Qualification Form!