How Do Merchant Cash Advances Work?
A merchant cash advance is based on the strength of your future credit card receivables. In simple terms, you are selling your future credit card sales for immediate cash.
Here is How it Works
For every $1 borrowed the merchant repays $1.30 to $1.39 over a 4 to 6 month period. A small percentage of the merchant’s MasterCard and Visa transactions are deducted from the merchant account to offset the charges of the Cash Advance. Should the monthly processing be less than the calculated percentage holdback, the weekly difference will be ACH'd from their business checking account.
View an example of a week’s worth of Visa/MasterCard Sales and the resulting payments.
A Cash Advance Amount is based on the average monthly Visa and MasterCard sales and the merchant’s need for capital. It is limited by the merchant’s ability to pay back the advance in no more than 6 months with no more than a 30% holdback percentage.
EXAMPLE:
A Merchant averages $10,000 in monthly MC and V sales and needs to borrow $12,500 for capital improvements
Cash Advance Payback is calculated by multiplying the total Advance Amount by 1.30, then dividing by 6 [number of months to payback] to determine the monthly amount of MC and V receivables that need to be collected.
$12,500 X 1.30 = $16,250 (Payback Amount)
& divide 6 (no. of months) = $2,708.33 (monthly payback)
Cash Advance Percentage [%] Holdback Rate is calculated on the Merchant’s monthly payback, divided by the average monthly MC and V sales. This percent is the reserve captured on each MC/V batch transaction.
$2,708.33 ÷ $10,000 (avg. MC/V sales) X
100 (to get percentage) = 28% (MC/V batch reserve) |
Receiving Cash Advance Amount occurs 3 to 5 days after the terminal is installed and BCC confirms funds are flowing correctly. The Cash Advance funds are ACH'd to the Merchant's bank account.
Send Us Your Processing Statements for a FREE review and preliminary cash advance funding calculation. Our consultants will help you to determine if a Cash Advance is right for your business. There is no obligation.
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