Many may say that Merchant Cash Advances are priced really high; yet, when you look at the ease of getting one and the convenience in paying back you may feel that it is very much beneficial to go for one. However, it is always better to understand the cost perception so that you know exactly what you are getting into. Also, it is good to get everything in writing including the amount you are requesting, the total amount you need to repay and the holdback or retrieval percentage, before you sign the contract.
The ‘Cents Paid Per Dollar Borrowed’ Perception
The amount of advance you request and the amount that you have to repay are termed in terms of the number of cents you need to pay for every dollar that you borrow. For instance, if you are borrowing $10,000 as MCA and if $13,000 is what you need to repay, you will be paying 30 cents extra for every dollar that you borrow.
The Price Ratio Perception
In this perception the cost is discussed by way of price ratio. Therefore, in the above example, where in the amount you borrow is $10,000 and return is $13,000, the price ratio will be estimated at 1.30. Hence, if you multiply $10,000 by 1.30, you will get the amount that you have to repay which is $13,000.
The APR (Annual Percentage Rate) perception
APR is a way to find out how many days you will take to repay the amount given as merchant cash advance. Many Merchant Cash Advance lenders would have included an APR calculator on their websites that can help you determine the number of days you will take to repay the amount, provided you pay a certain amount daily at a specified rate. For instance, in the above scenario, assuming that your future card % sales are 15% and your projected monthly card sales are $5000, your APR would be 38.53% and you will take 520 days to repay the amount with an average daily payment of $25 at 0.1056% daily interest rate.
In most cases, businesses that are not usually able to qualify for business bank loans go for Merchant Cash Advances. These lenders give an opportunity for small businesses to evolve, by giving them the working capital as and when they require. As per studies about 55 to 70% of the borrowers of MCAs go for this kind of financing more than once. This emphasizes the fact that a majority of borrowers approve of this system.
The set up fees and other costs involved in Merchant Cash Advances might make MCAs expensive in the eyes of many. However, ultimately it is up to you to decide whether you want to focus on enhancing your business or lowering your interest rates and costs. By making right finance available at the right time, many lenders have made it possible for many small businesses to grow and succeed. This is the reason behind the success and popularity of Merchant Cash Advances.
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