What is Merchant Cash Advance?
A merchant cash advance(MCA) provides alternative financing to a traditional small-business loan. With an MCA, a company gives you an upfront sum of cash that you repay using a percentage of your debit and credit card sales, plus a fee. MCA isn’t a loan. The provider is purchasing your future sales, and you’ll use those sales to repay the funds — plus fees. This type of financing can carry annual percentage rates in the triple digits and create a difficult cycle of debt.
Merchant Cash Advance rates and fees
Unlike traditional interest rates, merchant cash advance companies charge fees as a factor rate. Factor rates typically range from 1.1 to 1.5, depending on the provider’s assessment of your business.
The factor rate you’ll receive will likely depend on your:
- Years in operation
- Business financials
- Debit and credit card transactions
- Personal credit score
Businesses that have the ability to repay will likely receive higher factor rates and pay higher fees as a result. Factor rates do not include any additional fees the merchant cash advance company may charge you for working with it which will increase the total cost of your financing.
The downside to Merchant cash advance loans
- Expensive – MCAs are one of the most expensive forms of financing. Annual Percentage Rates (APRs) on merchant cash advances can reach 350%, depending on factors such as the lender, size of the advance, fees, the time it takes to repay and business revenue. Unlike traditional interest rates, factor rates can make it more difficult to determine exactly how much an MCA will cost you.
- Frequent repayment and debt cycle danger – Merchant cash advances are usually repaid daily and payments are deducted directly from your incoming sales, which can seriously impact your cash flow, putting you at risk of a cycle of debt.
- No option to save on interest rates – You have to repay a fixed amount of fees so you cannot save on interest by repaying early, unlike traditional loans.
- Confusing contracts – Merchant cash advance contracts are confusing because of factor rates and repayment schedules that are based on percentages of your daily sales. MCA providers don’t typically provide APRs in their agreements, which makes it difficult to compare these products with other types of financing.
- No federal regulation – Unlike traditional loans, merchant cash advances, which are structured as commercial transactions, are not subject to federal regulation.
What to do if your Merchant Cash Advance has defaulted
If your business is in default on a Merchant Cash Advance or is struggling with weekly or daily withdrawals to a Merchant Cash Advance, CuraDebt Business can help. MCAs may seem like an attractive solution for businesses but the terms are often risky.
Many businesses are experiencing failure due to a Merchant Cash Advance loan. We offer business owners, who are trapped in this situation, an affordable way out of their debt in hopes that they will regain control of their finances and their businesses.
We offer business owners a free consultation so that we can become familiar with your unique situation. Once we have determined that we can help, we’ll design a strategy that can significantly reduce, or even eliminate, your debt.
There is no one-size-fits-all MCA debt solution. However, our debt relief strategies are all centered around the following actions:
- We immediately protect your business financially. We’ll put a stop to the daily withdrawals and ensure that your personal finances aren’t in jeopardy.
- We negotiate a realistic settlement. Our experts work with your lenders to come to terms that your business can actually meet.
- Your business begins to save money for the resolution. With relief from daily withdrawals, your business is able to save for the agreed-upon settlement.
- You settle your MCA debt. You pay the lender as described in the settlement terms and regain control of your life, finances, and business.
The process described above will provide a total resolution to your MCA debt, but time is of the essence. MCA funders have created an aggressive lending cycle that is not designed in favor of business owners, but that doesn’t mean you have to lose everything. Call us today for your free consultation. 1-877-504-0981