Question: Why do Merchant Cash Advance Providers advertise there is no “interest rate” – Don’t you charge a fee?
Answer: As with any other financial institution, Merchant Cash Advance providers all charge a fee. We can’t call it an interest rate because there are no fixed payments and therefore no fixed time with this type of financing. Rather than having a fixed monthly payment as you would with a traditional bank loan, payments on a merchant cash advance are based on a percentage of your sales. While it would certainly make financial planning a breeze if you knew EXACTLY what your sale were going to be for the coming year, that isn’t reality. By looking at the past 6-12 of the businesses total credit and debit card sales, we estimate how long the advance will take to pay off (and how much you qualify for) but there is no penalty for it taking longer. Your customers, the Canadian economy and small business ownership in general is unpredictable and things happen – we get that!
One of our clients in Vancouver, BC had an accident in her store which left her needing to to a major renovation. This caused her sales to be drastically reduced for about 2 months. Since payments on a merchant cash advance are based on sales, she wound up paying less than $50.00 a week for over a month. This gave her the flexibility to complete her renovation and not have to worry about making payments on her financing when she wasn’t generating any sales.
That’s one of the major benefits associated with this small business loan alternative. You only make payments, when you have the sales to do so!