FAQ

A merchant cash advance provides borrowers with a lump sum of cash upfront, in exchange for specific borrowing terms. Borrowers agree to pay their lenders a fixed amount over a certain repayment schedule with either a fixed or floating interest rate.

A factor rate is a flat fee charged on MCAs.
Example: A 1.30 factor rate = 30 cents for every dollar borrowed
$100K at a 1.30 factor rate = 130K in total repayment (30K in cost)

The phrase “financing terms” usually refers to the term length of business financing (however it is sometimes also used to describe other financing conditions). For example, financing terms can range from 6 months, 12 months, 24 months, 4 years, 5 years, 10 years, or longer—depending upon the nature of the financing.

An interest rate is the amount a lender charges a borrower, and is a percentage of the principal—the amount loaned. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR). Example: A 12% interest rate or APR = 12 $1,000 monthly payments + a $100,000 balloon payment. $100K LOC at a 12% interest rate or APR = 112K in total repayment (12K in cost).

• 1st Position: A first position is the first MCA a business takes (capped at 24 months)
• 2nd Position: When a business’s first position is not 50% or more paid down, a business takes additional capital with an additional payment (capped at 9-12 months).
• 3rd Position: When a business’s second position is not 50% or more paid down, a business takes additional capital with an additional payment (capped at 5-7 months).
• Renewal: Once a business pays off 50% or more of an MCA (regardless of position), they are eligible for a renewal on that position.

Stacking is when a short-term financing deal or cash advance is approved on top of a deal or advance that is already in place, with no consideration of the borrower’s ability to pay back the debt. It often happens when a lender, who you don’t know and likely have never spoken to before, sees the UCC filing for your first advance (because it’s part of public record), and contacts you to inform you that you now qualify for an additional advance. Stacking could put a business at risk of default and bankruptcy.

A line of credit is revolving financing that provides a predetermined amount of capital, which can be accessed as needed, repaid, and then used again. An MCA provides a fixed amount of capital in a lump sum that must be repaid over the term of the financing.

There are non-profit micro-lenders that offer very low or zero interest loans to qualifying business owners. They are typically in the form of micro-loans (the SBA and most traditional lenders consider loan amounts of $50,000 or less to be micro-loans). Beyond those options, bank loans for established businesses with strong collateral will typically be the next cheapest option.

There are many options available for most small business situations. The first questions to ask to find the best financing for your business are 1) What is the purpose of this financing? 2) How much capital does the business need to meet that need? 3) What type of financing can the business owner qualify for? The answers to these questions will lead you to the best financing for your business and situation.

A specific type of asset-based financing secured by real property. This type of financing is usually issued by private investors or companies, and is usually used as a bridge to more traditional financing.

Accounts receivable financing uses a company’s outstanding AR as collateral for financing. This is also known as factoring. A third party, known as a factor, purchases a company’s invoices or purchase orders at a discount, giving the business owner access to a percentage of that invoice now, instead of waiting for the invoice or purchase order to be paid. The balance, minus the agreed upon fees are then paid to the business owner once the factor has collected payment from the business’ customer(s).

Short-term business financing is typically financing with a term of 12 months or less.

There are 3 types of payment schedules for an MCA:

• 1. Daily
• 2. Weekly
• 3. Monthly

Payment schedule is determined by the lender at the time the MCA is given. Payment schedule is dependent upon

• Credit score
• Monthly revenue
• Industry
• Past payment history

Payments are only pulled on weekdays, no weekends or holidays.

• Daily = 21 days per month
• Weekly = 4 payments per month
• Monthly = 1 payment per month

Lines of credit are paid back in two parts:

• Monthly interest payments
• Final balloon payment
• Ex: A $100,000 line of credit at 12% interest or APR would be paid back in 12 $1,000 monthly payments. Then, at the end of the term, would be paid back in a final balloon payment of $100,000. 

Payment schedule is determined by the lender at the time the cash advance is given. Payment schedule is dependent upon:

• Credit Score
• Monthly Revenue
• Industry

4. Past payment history