Important Merchant Cash Advance Terms
If you are considering alternative finance options for your business, it is important to become familiar with the terminology used by the providers of these services. The following is a list of important concepts and terms common to this type of transaction.
Business Cash Advance: Sometimes called a merchant cash advance or a business cash advance loan, this is a financial transaction where a business sells a portion of future sales in exchange for a large cash payment. Payment amounts, repayment terms, and repayment amounts vary depending on the agreement reached with the advance provider.
Cash Advance Provider: A business that purchases the future sales of another business in exchange for a cash payment. The provider can be a large bank or a small business that specializes in this type of financial product.
Factoring Service Provider: A business that purchases accounts receivable loans from other businesses.
Factoring Fee: The percentage that a factoring company charges for collecting on a purchased invoice.
Advance Amount: The amount of money given to a business up front in exchange for a percentage of future revenues.
Factor Rate: Sometimes called provider fee, the percentage of the advance amount that the provider charges to provide the advance. The factor rate is usually between 30-35% of the total cash advance, though in some cases providers may charge up to 80%. This rate varies depending on credit history, business revenue amounts, and the risk the provider feels it will bear in advancing the payment.
Daily Retrieval Rate: The amount a provider collects from daily credit card revenue.
Safe Retrieval %:The daily retrieval rate is based on this percentage, which is the portion of daily sales that are safe to use for daily repayment. This percentage varies depending on the volume of credit card sales and the advance amount.