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We get asked all the time about the cost of our small business loan alternative. Most people automatically ask for the cost in terms of an interest rate but because a merchant cash advance has no fixed payments and no fixed term, it’s impossible to quote the cost as an interest rate.

When we get inquiries it goes something like this….

Business owner: “what’s the interest rate on your small business loan?”

Me: “it’s not a loan –it’s a merchant cash advance. A merchant cash advance is a lump sum payment today in exchange for a small percentage of your future sales.”

Business owner: “What?”

Me: “We are purchasing your future credit/debit card receivables at a discount”

Business owner: “What the hell are you talking about?

Me: “Let me put you through to our Client Relations Manager

Not really

A Merchant Cash Advance is a relatively new and very unique alternative to a traditional small business loan. It is designed specifically for retailers who accept credit and debit card as payment. The advanced amount is usually equal to about 1 month worth of expected credit/debit card sales. These future credit/debit card receivables are “purchased” at a discount.

For example, say the business does $10,000 per month in average credit/debit card sales. With a Merchant Cash Advance the business owner, if qualified, could get $10,000 today in exchange for $12,000 worth of future credit/debit card receivables…so, we are “purchasing” $12,000 worth of future sales and paying $10,000.

Probably the most unique feature of a merchant cash advance versus a typical small business loan is the payment plan. With a merchant cash advance, payments are made daily based on a small percentage of sales. Payments fluctuate with sales so there is no fixed amount – they continue every day for about 7-9 months until the total amount (in this case $12,000) has been collected. The total cost (in this case $2,000) remains fixed regardless of the amount of time it takes to repay.

So, long story short, typical “interest rates” don’t apply to a merchant cash advance.

To learn more about how a merchant cash advance works go to our FAQ page

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