Product Guides

A Merchant Cash Advance is NOT a loan—it's a purchase of your future credit card receivables.

How It Works:

1. ●You receive a lump sum of capital upfront
2. ●You sell a portion of future credit card sales
3. ●Repayment happens automatically as a % of daily card transactions
4. ●Busy day = higher payment; slow day = lower payment

Key Terms:

Factor Rate: Instead of interest, MCAs use factor rates (1.1 to 1.5 typical).

• ●Factor of 1.3 on $100K = $130K total payback
• ●The $30K is your cost of capital

Holdback/Retrieval Rate: Percentage of daily card sales taken for repayment (5-20% typical).

• ●15% holdback on $2,000 daily sales = $300 payment

Term: Not fixed—depends on how fast your sales repay the advance.

• ●Strong sales = faster payoff
• ●Slow sales = longer payoff

Why MCAs Are Popular:

• ●Same-day funding possible
• ●No credit score requirements
• ●High approval rates
• ●No collateral needed
• ●Payments flex with business

The Trade-Off: Higher cost than traditional loans. The convenience and accessibility come at a premium. A 1.3 factor paid in 6 months ≈ 60% APR equivalent.

Factor rates are how Merchant Cash Advances are priced. Understanding them is crucial.

What is a Factor Rate? A decimal number (like 1.25 or 1.4) that you multiply by your advance amount to get total payback.

Calculating Your Cost:

• ●Advance Amount × Factor Rate = Total Payback
• ●Total Payback - Advance Amount = Cost

Example:

• ●$100,000 advance × 1.35 factor = $135,000 total
• ●Your cost: $35,000

Factor Rate vs Interest Rate: Key difference: Factor rates are FIXED. You owe the full amount regardless of how fast you pay.

• ●Interest: Pay faster = pay less
• ●Factor: Pay faster = same total, higher effective APR

Typical Factor Rates:

• ●Excellent profile: 1.10 - 1.20
• ●Good profile: 1.20 - 1.30
• ●Average profile: 1.30 - 1.40
• ●Higher risk: 1.40 - 1.50+

Converting to APR (Approximate): Formula: ((Factor - 1) / Advance) × (365 / Days to Payoff) × 100

Example with 1.3 factor:

• ●6-month payoff: ~60% APR
• ●9-month payoff: ~40% APR
• ●12-month payoff: ~30% APR

What Affects Your Factor Rate:

• ●Time in business (longer = better)
• ●Monthly revenue (higher = better)
• ●Industry risk level
• ●Bank statement health
• ●Existing advances/debt

MCAs are one of the most popular funding options for restaurants. Here's why:

Why MCAs Work for Restaurants:

Natural Fit:

• ●Restaurants process high card volume
• ●Revenue fluctuates by day/season
• ●Equipment breaks don't wait
• ●Fast approval matches urgent needs

Payment Flexibility:

• ●Slow Tuesday? Small payment
• ●Busy Saturday? Larger payment
• ●Holidays off? Very low payment
• ●Payments naturally match your cycle

Common Restaurant MCA Uses:

• ●Emergency equipment replacement
• ●Kitchen renovation
• ●Seasonal inventory stock-up
• ●Payroll during slow season
• ●Marketing campaigns
• ●Expansion down payment

What Restaurant Owners Should Know:

Ideal Candidate:

• ●Processing $15K+ monthly in cards
• ●6+ months in current location
• ●Stable or growing sales
• ●Clear use of funds

Typical Terms for Restaurants:

• ●Advance: $25K - $200K
• ●Factor: 1.25 - 1.45
• ●Holdback: 10-18%
• ●Term: 4-12 months

Watch Out For:

• ●Taking too much during slow season
• ●Multiple MCAs stacked
• ●Ignoring total cost
• ●Using for unprofitable ventures

Alternatives to Consider:

• ●Equipment financing for big purchases
• ●Line of credit for ongoing needs
• ●SBA if you can wait and qualify

The holdback (or retrieval) rate determines how much of your daily sales go toward repayment.

How Holdback Works: Each day, a percentage of your credit card sales is automatically deducted for repayment.

Example:

• ●Holdback rate: 15%
• ●Daily card sales: $2,000
• ●Daily payment: $300

Typical Holdback Ranges:

• ●Low: 5-10% (easier on cash flow, slower payoff)
• ●Standard: 10-15% (balanced)
• ●High: 15-20% (tighter cash flow, faster payoff)

Impact on Your Business: The holdback affects daily cash flow:

• ●10% holdback on $3,000/day = $300/day = ~$9,000/month
• ●20% holdback on $3,000/day = $600/day = ~$18,000/month

Calculating Sustainability: Before accepting, calculate:

1. ●Average daily card sales
2. ●Daily payment at proposed holdback
3. ●Monthly total payments
4. ●Remaining cash after payment

Rule of thumb: If holdback + existing expenses > 90% of revenue, reconsider.

Negotiating Holdback: You may be able to negotiate:

• ●Lower holdback = longer term, same total cost
• ●Higher holdback = faster payoff, frees you sooner
• ●Some flexibility during slow seasons

Variable vs Fixed: True MCAs have variable daily payments. Some products labeled "MCA" have fixed daily payments—understand which you're getting.

Retail businesses are prime candidates for MCAs due to their card processing volume.

Why Retail + MCA Works:

High Card Volume: Most retail transactions are card-based, making repayment seamless and qualification easier.

Seasonal Flexibility:

• ●Q4 holiday rush = higher payments (when you can afford it)
• ●January slump = lower payments (when you need breathing room)

Inventory Timing: Need to stock up before peak season? MCA provides quick capital to capture opportunity.

Common Retail MCA Uses:

• ●Seasonal inventory purchase
• ●Store renovation/refresh
• ●Point of sale upgrades
• ●Marketing/advertising
• ●Second location prep
• ●Emergency repairs

Retail-Specific Considerations:

Timing Your Application: Apply after strong months when bank statements look best. September is ideal for holiday inventory funding.

Inventory ROI: If your inventory turns at 50%+ margin, MCA cost can be justified. Calculate:

• ●Cost of MCA: $30K on $100K advance
• ●Inventory profit: $100K inventory at 50% margin = $50K profit
• ●Net benefit: $20K (worth it)

Typical Terms for Retail:

• ●Advance: $20K - $300K
• ●Factor: 1.20 - 1.40
• ●Holdback: 10-15%
• ●Term: 6-12 months

E-commerce Considerations: If primarily online, consider revenue-based financing instead—it's designed for e-commerce and may offer better terms.