A merchant cash advance is a loan specifically designed for businesses (merchants) who use card machines to take payments.
The mechanism of funding, and repayment is what makes this product unique.
A merchant is essentially buying early access to their expected turnover, so that they can use the finance they need.
Card machines provide an easy to interpret data source for lenders. It is a very predictable way to estimate how much a business can afford to repay.
They also make repayment very easy. Most MCA lenders automatically deduct a portion of your card sales, to make for easy and proportional repayment.
Because the lender is making a decision on your propensity to pay, not how many assets you own, this is a type of unsecured loan.
Unsecured loans like this use alternative data to make a loan decision.
Data-backed finance decisions typically happen in a matter of hours. You can expect funds to arrive in your account within days of your application. This does depend on the loan amount you are after.
Through FundingHub, you are likely to qualify for a merchant cash advance if you meet the following criteria:
* Figures are for example purposes only, and may vary from business to business.
A merchant cash advance has two main features:
The factor rate is essentially the cost or interest rate that gets charged to you for using the facility.
As an example, if a factor rate of 1.25 is applied to your R100 000 merchant cash advance, your total cost of finance will be R25 000. That's R100 000 x 1.25 = R125 000.
This means that the total amount you will have to payback is the loan (principle) amount multiplied by the factor rate.
The factor rate is calculated by the lender based on how risky they deem the loan to be. The more risk, the higher the factor rate.
Repayment of your total loan amount usually happens on a proportional-to-revenue basis. This means that the more revenue you make, the more you repay, and vice-versa.
The % of your revenue which you repay will be decided between the you and the lender. This will be based on your affordability, and how much margin you have on your products.
💡 Tip: For an MCA, there is no advantage to early repayment. Because the factor rate is fixed, you will not be able to reap the benefits of lower interest payments if you repay earlier.
Because of the fact that your repayment is linked to how much revenue you earn, there is generally no fixed repayment period on a MCA.
If your revenue spikes, you repay the loan faster.
The cost of a merchant cash advance is calculated using a Factor Rate. This determines your final loan cost.
The factor rate of your merchant cash advance can range from 1.15 to 1.4.
The three factors which affect the factor rate, and therefore cost, of the loan are:
A business loans R100 000 for 6 months, using a merchant cash advance facility.
They are relatively new business:
The factor rate is 1.20.
The agreed revenue repayment portion is 10%.
The loan repayment schedule may look something like this:
* Figures are for example purposes only, and may vary from business to business.
The calculation of your merchant cash advance factor rate includes things like:
Anything you'd like.
It's very seldom that a lender stipulates your use of funds.
Here is a list of some of the common reasons a merchant might want to use a merchant cash advance:
Remember: A MCA is a relatively expensive loan, so you should always consider what your use of funds is, and whether it's appropriate to use an MCA for that or not, given the cost.
Here are some reasons why some business owners opt to use a merchant cash advance facility:
There are con's to MCA's too. Here are some of them:
Because an MCA is a specialized product, we've designed a special application process that only takes up a small amount of your time, and collects the right information.
Here's how it works.
One application form will mean you find MCA loan offers from over 15 different MCA-specific lenders.
It's fast, and free, and fully online.
If there are any supporting info or documents required, you can provide them during the application - or at a later stage too.
We will present you with a list of all your loan offers. This takes seconds to fetch, and the list will be continually updated as you add more information to your profile.
All the specifics around, pricing, fee's, speed of funds and the different lenders is laid out for you. If you have questions, we've got an independent analyst who can help you choose the right offer.
With your permission, your details will be shared with the lender who will disburse the loan to you. They'll collect your bank details, approve your offer and pay you out. We'll be here if you need any independent advice along the way.
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