I was asked where one could get some 3rd party verification on how merchant cash advances worked? Seeing there is really no industry related information at NAMAA, (the sham it is) website I searched for the request and found it at business news weeks website. So here you go just click HERE. You will find what you are looking for regarding merchant cash advance and the industry that is merchant cash advance.

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Truth 4 Factor Rate is the mother of all truths in your quest for accuracy and cost of money. First, this is not an interest rate. Remember this is not a loan but an agreement between you and the funding company to sell a percentage of your future credit card receivables. But the Factor Rate is very important. Let’s demonstrate, shall we….

John is approved for a merchant cash advance of $50,000 and the funding company has agreed to purchase $67,500 of future credit cards what is the factor rate being charged?

To answer that we need to understand what factor rate ranges most funding companies charge. These factor rates will be different between the funding companies and will vary according to your business type, length of time in business, both the business and personal credit along with the annual gross revenue of the business and credit card volume and finally, turn time. Tip: The shorter the turn time the more favorable the factor rate usually.The lowest factor rate I have seen is 1.12 or 12 points on the money. The highest was 1.55 unless you get involved with a restaurant rewards network funding company. Then it could jump to a full 2.00, ouch!

In our example above John is being charged a factor rate of 1.35. Take the advanced amount $50,000 multiplied by 1.35 and you get $67,500. So let’s look at it when we use a more favorable factor rate, say 1.29. $50,000 x 1.29 = $64,500 or $3,000 less cost.

Your goal should be to negotiate the lowest Factor Rate you can. But realistically, if you have marginal or less credit and not a long business history don’t be shocked if you can’t find a factor rate less than 1.30

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Truth 3 – Hold back (AKA Remittance) Percentage deals with the percentage amount that will be allocated on each credit card transaction towards the repayment of the merchant cash advance until the total amount is paid off. It is important to note that this is not an interest rate, many people confuse this as such but it only serves as the percentage amount in relationship to the split allocated to the repayment.

For example: John’s business took in $1,000 of credit cards today. If John’s hold back percentage was 15% then $150 would be allocated towards the merchant cash advance outstanding balance.

Your goal should be to keep your holdback or remittance percentage to a level that you are comfortable with. The lower the hold back the less cash flow impact you will experience. business cash advance

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Truth 2 – Hypothetical Future Credit Card Sales

A merchant cash advance is something that is not set on a fixed time period and the funding company is buying a percentage of your future credit card sales that no one, including you, can be exactly sure how much you will do. The funding company looks at your past, typically over the last 6 to 12 months, averages the credit card volume and then looks to the future based on an expected turn time (Usually between 4 and 12 months) multiplies the average monthly credit card volume by the expected turn time and you have the Hypothetical Future Credit Card Sales. It is often referred to as Right to Receive as the funding company has rights to the future credit card sales they purchase call business cash advance

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Truth Number 1 has to start with what is a merchant cash advance? As we read through the truths you will see that terms will be linked for easy reference.

Our friends at Wikipedia don’t have any pages when you look up Merchant Cash Advance, WOW, what are we to do? How can I get accurate information if it is not in the free encyclopedia?

Well remember, I am an industry insider and have a lot of years experience. Oops, can’t give out to much information about me. Anyway, back on subject.

Merchant Cash Advancing is where a business who accepts major credit cards, typically Visa MasterCard and American Express, for payment of the products and or services they provide agree to sell a percentage of their hypothetical future credit card sales at a discounted cash value, today.

This is what a merchant cash advance is.

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