How to Calculate the Cost of a Merchant Cash Advance

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How to Calculate the Cost of a Merchant Cash
Advance
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How To Calculate a Merchant Cash Advance
The formula to figure out how much a merchant
cash advance is simple. All you need from the
funding provider is the factor rate they will
charge, and how much you need to borrow. Lets
say you need to borrow 50,000, and the provider
charges a factor rate of 1.3. Heres what it
looks like Advance Amount Factor Rate Total
repayment amount 50,000 x 1.3 65,000
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How a Merchant Cash Advance Provider Determines
Your Rate
MCA Providers determine your factor rate in
several ways, including

• Sales volume and cash flow stability

MCA providers will look through your total sales
history to see where the business stands in terms
of cashflow. This is a similar process you would
also go through for a traditional business loan.
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• Industry type

Some small businesses are inherently riskier than
others. If your business is in a seasonal
industry or other type of business that may not
have stable revenue, you may have a higher factor
rate to adjust for the higher risk.
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• Requested advance amount and repayment period

The repayment terms and amount of upfront capital
requested can lead the funding provider to raise
the factor rate higher, making the funding more
expensive. Borrowers should run the numbers of
how much they may expect to pay, depending on the
businesss performance historically.
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When Using A Merchant Cash Advance Makes Sense
Using a merchant cash advance can be a pricey
business financing option, so its vital to know
exactly what youre going to use the funds for,
and that it will be worth the cost. Here are a
few scenarios when an MCA could be the right
choice.

• Projections of future receivables look bright

If you know that future months could be an
upswing for your business, an MCA could be a
great short-term solution.
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• Cash flow gap for paying urgent expenses

If youre currently facing a lower revenue period
in your business and youre facing a shortfall to
pay employees, rent, or other essential costs,
using a merchant cash advance could be a type of
financing that could work. Additionally, the
application process can go quickly if you need a
lump sum of cash urgently.
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• Fixed payments dont align with your financial
  situation

A traditional loan, like a term loan, will likely
come with fixed payments. This means that the
monthly payment each month will be identical.
However, a merchant cash advance has a unique
structure where monthly payments will track your
businesss receivables like credit card sales.
This option of a quick business cash advance can
be a solid option for small business owners to
consider.
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Why Choose Biz2Credit?

• Trusted partner for franchise funding
• Biz2Credit was founded in 2007 and has provided
  more than 10 billion in loans.
• Dedicated support team
• Tailored financing solutions

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