The cost of a merchant cash advance (MCA) can vary depending on a number of factors, including the lender, the amount of the loan, and the repayment terms. Here are a few things to consider when determining the cost of an MCA:
Factor rate: The factor rate is a multiplier that is used to determine the total amount you will need to repay. For example, if you borrow $10,000 with a factor rate of 1.5, you will need to pay back a total of $15,000 (1.5 x $10,000).
Repayment percentage: The lender will typically take a percentage of your daily credit card sales until the loan is fully repaid. This percentage is known as the “holdback,” and it will be deducted automatically from your sales until the loan is repaid.
Origination fee: Some lenders may charge an origination fee to cover the cost of processing the loan. This fee is typically a percentage of the total loan amount, so it will be higher for larger loans.
Other fees: Some lenders may charge additional fees, such as application fees, closing fees, or early repayment fees. It’s important to carefully review the loan agreement to understand all of the fees that may be associated with the loan.
It’s difficult to give a precise estimate of the cost of a merchant cash advance without knowing more about the specific loan terms. However, it’s important to be aware that MCA’s can be more expensive than traditional loans, with factor rates often ranging from 1.1 to 1.5. This means you could end up paying back significantly more than the amount you borrowed.
It’s always a good idea to carefully compare offers from multiple lenders and consider the total cost of the loan before deciding to take out an MCA. You may also want to consider alternative financing options, such as a traditional loan or a line of credit, to see if they might be a better fit for your needs.