Merchant Cash Advance Calculator: What Can You Afford?

Plug in the numbers to see what a merchant cash advance will cost you

How Much Will Your Merchant Cash Advance Cost?

While every business owner needs capital to grow and operate their business, not every small business owner can qualify for the best small business loans on the market.

Traditional bank loans and longer-term loans are only really options for the most qualified borrowers—strong credit scores, annual revenues, and a long time in business.

If you’re not the most qualified borrower, where can you look for the capital your business needs?

Merchant cash advances can be a solution for business owners in this scenario. However, the fast, easy access to capital comes at a steep price.

Just how expensive can a merchant cash advance be? Use our merchant cash advance calculator to find out.

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Are Merchant Cash Advances Your Lowest Cost Financing Option?

Many small business owners who don't qualify for the best business loans can find fast financing in merchant cash advances.

However, because merchant cash advances are the most expensive financing product on the market, they should be considered a last-ditch financing option.

Shop your loan options to make sure you're getting the lowest-rate financing for your business.

Check Your Options

How Do Merchant Cash Advances Work?

Whereas you probably know and understand the concept of a business loan well, you might not be familiar with how a merchant cash advance works.

A merchant cash advance is a unique financing option—helping out a certain type of business owner. If you don’t have the time to wait for a typical loan or wouldn’t qualify, a merchant cash advance might be for you.

A merchant cash advance is a type of financing where a cash advance company gives you an upfront lump sum of capital in exchange for a slice of your daily credit and debit card sales.

This advance of cash can be deposited into your bank account a day or two after you apply. The merchant cash advance company will take a fixed percentage of your credit card sales (or from your bank account directly via ACH) each day until you’ve paid back the total lump sum amount—plus what they charged you in interest.

Because the merchant cash advance company takes a fixed percentage of your daily credit card sales, they’ll take less from you when sales are slow. However, when business is booming, a lot of what’s coming in will go right back out in repayment to the merchant cash advance company.

Read more about merchant cash advances

For Your Merchant Cash Advance Calculator: Amounts, Terms, and Rates

Let’s get down to the nitty-gritty of merchant cash advances. What do the details look like?

A merchant cash advance offers similar amounts of funding than other short-term financing options do—ranging anywhere from $2,500 to $250,000 in amounts.

The repayment term, however, is as clear-cut. If you take on a merchant cash advance, you’ll have it on your books for as long as it takes for the total lump sum amount—plus interest and fees—to be paid back with daily repayments.

On average, though, a business will pay back a merchant cash advance in 8 to 9 months. The higher the percentage the cash advance company takes from you, the faster you’ll pay it off.

As far as rates, you need to know that, on average, merchant cash advances are the most expensive financing product on the market—hands down. (You’ll probably notice a sky-high APR when you first use a merchant cash advance calculator).

With a merchant cash advance, your rate could start at 15%, but it could easily go up to the triple digits.

How Do Merchant Cash Advance Companies Quote Their Costs?

You’ll use a merchant cash advance calculator a little different than how you might use another business loan calculator.

Why?

That’s because a merchant cash advance company almost never quotes its rates the same way other small business lenders do.

Instead of seeing a percentage quoted as your interest rate (which you can then combine with your loan fees to get your APR), merchant cash advance companies typically quote their costs as factor rates.

A factor rate is a decimal—typically ranging from 1.2 to 1.5 for merchant cash advances.

In order to understand how much you’ll end up paying the merchant cash advance company back, you multiply your total advance amount by the factor rate.

What Will a Merchant Cash Advance Cost? Here’s an Example to Plug Into Your Short-Term Loan Calculator

What numbers will a merchant cash advance calculator spit out? Let’s take a look at the cost structure in action.

Say you’re approved for a merchant cash advance for $20,000 at a 1.2 factor rate.

Multiplying $20,000 by 1.2, you’ll find that you need to repay the merchant cash advance company $24,000.

At first glance, it might look like your interest rate is 20%. But that’s not the right way to think about merchant cash advances—and that’s why it’s important to use a merchant cash advance calculator to make sure you’re looking at the right numbers.

To do determine the true cost of a merchant cash advance, you have to look at your factor rate and what you’ll pay each day through the lens of your APR.

If your merchant cash advance company is going to take 15% of your daily credit card sales and you’re estimating a total of $25,000 in credit card sales each month, here’s what your merchant cash advance calculator will show you:

You’ll repay that merchant cash advance in 192 days, with $125 payments each day. And whereas you interest rate seemed like it would be 20%—the APR is 71.26%.

What Can You Qualify For?

After using at a merchant cash advance calculator, it’s becomes clear that looks can be deceiving. The APRs on merchant cash advances can be sky-high. So before you take on this type of financing, it’s crucial that you’ve shopped around your options so you know that you’re getting the lowest rates possible for your small business.

Check Your Options

How Does This Merchant Cash Advance Calculator Work?

When you get your merchant cash advance offer, the next thing you absolutely need to do before signing on the dotted line is use a merchant cash advance calculator.

Luckily, a merchant cash advance calculator makes finding the true cost of your loan easy.

To use the MCA calculator, you’ll first need to know the total advance amount and your factor rate—those should be easy to find in your merchant cash advance offer.

You’ll also need to know the fixed percentage the merchant cash advance company will take from your daily credit card sales. The percentage the company takes from your sales will vary depending on how risky you are as a borrower. (If you’re considered a riskier borrower, the merchant cash advance company might take a larger percentage from you. The faster you pay off the merchant cash advance, the less risk the cash advance company takes on.)

Finally, you need to give your best-guess estimate of what your credit card sales will be in the coming months. Take a look at your average monthly credit card sales from the past year to get a ballpark idea of what your monthly credit card sales will look like in the future.

Plug in those numbers (along with any fees that are included in your offer), and your merchant cash advance calculator will spit out your APR!

Why Are Merchant Cash Advances So Expensive?

When you use a merchant cash advance calculator, you might be stunned by how high the APR really is.

Why are merchant cash advances so expensive?

Well, it really comes down to two factors.

As is the case with other quick business loans, fast cash is expensive cash. A merchant cash advance offers extremely fast access to financing. Whereas a bank loan could take weeks or months to secure, you could have funds from a merchant cash advance in your bank account the same day you apply.

This means that the merchant cash advance company spends less time vetting that you’re a strong borrowing candidate with information and documentation about your business—making you a riskier borrower. All in, you’ll pay for the convenience of funds sooner rather than later.

And finally, merchant cash advances tend to be more expensive than other loan products because of their qualification standards.

If you find that you’re unqualified for most financing products, then merchant cash advances could be your best (and only) financing option—you don’t need the best credit score or have been in business for that long to qualify.

Plus, merchant cash advances are unsecured loans. If you don’t have any piece of valuable collateral to offer for the loan, you’ll still qualify—but you might see higher rates because of it.

Learn more about merchant cash advances:

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5 Reasons Why You Need to Refinance Your Merchant Cash Advance

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Interested in Merchant Cash Advances? Consider These 3 Other Loan Products

Borrowers looking to take out merchant cash advances should proceed with caution. Remember, they’ll almost always be your most expensive borrowing option.

And with both their steep APRs and quick approval process, it’s easy to get too far in over your head with merchant cash advances.

If you use your merchant cash advance calculator and find that the APR is just too much to stomach, there are other similar financing products on the market. Here are three other business loans to consider.

1. Short-Term Loans

A short-term loan is a lump sum loan that you pay back over a set period of time, with fixed daily or weekly payments.

Compared to merchant cash advances, short-term loans offer similar loan amounts, application processes, and qualification standards.

Short-term loans offer $2,500 to $250,000 in financing over a term of anywhere from 3 to 18 months.

While short-term loans can still be expensive, they might not come with as high an interest rate as a similar merchant cash advance would.

Plus, a distinct advantage of a short-term loan is their predictability. Unlike a merchant cash advance, you’ll know how much you’ll be paying in daily or weekly payments—and how long the debt will be on your books.

Read more about short-term loans

2. Business Lines of Credit

While some business lines of credit are more comparable to longer-term loans (offering large credit lines, flexible terms, and very affordable rates), some are more similar to short-term loans.

That’s why we like to designate short-term lines of credit and long-term lines of credit—although it’s not an industry standard.

These lines of credit offer flexible financing via a pool of funds that you can use whenever you want for your business. You’ll only pay interest on the capital you use from your line of credit, and once you repay in full, your credit line gets refilled to its original amount.

Line of credit lenders like Kabbage, BlueVine, and OnDeck offer lines of credit that are relatively easy to apply and qualify for. Interest rates, however, will be similar to what you can find on a short-term loan.

Read more about business lines of credit

3. Business Credit Cards

If you’re pursuing a merchant cash advance because you’re relatively new in business, need funds quickly, or lack collateral (making you unqualified for many small business financing products), then consider using business credit cards.

While not often thought of as a “loan,” a business credit card can help you finance those initial expenses you need to cover to get the ball rolling for your business.

Business credit cards give you the freedom to borrow as much or as little as you need each month—within your credit limit—and use those funds however you like. And if you need even more flexibility, a business charge card doesn’t even come with a preset spending limit.

You can be approved quickly, you don’t have to offer up any collateral for the credit line, and you’ll probably find a lower APR than what you could with merchant cash advance.

Find the best business credit card for you

See What Other Loan Products Will Cost You

A merchant cash advance is an expensive financing option. See what other products will cost you with these business loan calculators.

Ready to Grow Your Business?

Last updated January 23, 2020