Further understanding of Merchant Cash Advance, so before reading this is an informative blog for people who get surprised by the term rates, but crunch the numbers and most of you will still do fine and make a profit. If it helps accelerate your business’s growth with the injection of the capital take it.
The Merchant Cash Advance industry has built a reputation for being reserved for businesses who are desperate for cash but this nowhere near the case,
Merchant Cash Advance is placed into 2 categories A-B Paper18%-30% interest on average
These are businesses with strong cash flow and a 600-640 credit score. The term lengths are usually 6-24 months pre-COVID and the amount of cash given is usually 80%-120% of the merchant’s deposit volume. In a recent report, 80% of business owners were satisfied with the capital received and showed handsome quarterly. Cost is usually the number one issue that comes to mind before taking on a merchant cash advance but if you have an investment opportunity planned that takes no longer than 6-8 months in which you will turn a profit on why not take it? You can’t go broke making a profit. Further, there are advantages that a merchant cash advance has over banks. One is that you can receive the money a lot faster, secondly, it is a lot more flexible, thirdly it is renewable, and fourthly there is no prepayment penalty. Remember we are not backed by banks; we are backed by investors who count on the merchant to use the money responsibly to help their business grow and not bite off more than they can chew by stacking beyond 3 positions. You can gripe about the cost which is tax-deductible, but if it helps accelerate the growth of your business if you were not to take it then take it.
C-D Paper 40%-49% Interest on average:
This paper is reserved for merchants with a sub 550-590 credit score. Usually, these merchants hit a trough and need to get out, and can’t find funding anywhere else. This isn’t the end all be all for the merchant and in a recent report, 72% actually benefited from the capital. Remember this is small business investor capital with profit margins being a lot higher than mid-size companies. With that said under the correct allocation, the money deployed can benefit the businesses’ s growth.
Bank Term Loans:
It’s not all roses and daisies, from my half of a decade of experience with thousands of applications only 1% was approved for a 10-year SBA at 8% APR. Do the math and that is 80% over 10 years. The other 5% were approved with 3-5-year loan terms with 10%20% APR. Do the math and we are talking near 50% as well. Both with no prepayment penalty. Capital rarely cheap whether it be by the banks or by investors.