Rates and Terms
Rates and Terms
Business cash advances are more expensive than a traditional bank loan. The cost of an advance is similar to an interest rate in a loan transaction. Providers charge fee, sometimes called a Factor Rate or Provider Fee, that can be anywhere up to 80% in the most extreme cases. Usually provider fees are between 30 to 35 percent. The rate varies if your business is in a higher-risk industry or requests a large advance.
The repayment amount is the advance amount plus this fee:
| Advance Amount | $10,000 |
| Factor Rate | 30% |
| Repayment Amount | $13,000 (Advance Amount + $3,000 fee) |
The total repayment amount would be repaid as a series of daily transfers
| Daily Sales | $2,000 |
| Daily retrieval rate | 25% |
| Daily payment | $500 |
The total amount would be repaid in less than a month in the above example.
The cost of business factoring depends on your business and whether your customers make payments on their invoices. Factoring works like a cash advance transaction in that the provider advances a payment, but that is where the similarities end. In factoring, the first payment or “advance” is made in exchange for the assignment of an invoice. The advance is usually 50-80% of the invoice value. When the invoice is paid, the factor makes a second payment for the remainder of the invoice value, less a “Factoring Fee,” or their charge for the service. Factoring fees are expressed as a percentage of the invoice value. Here is an example:
| Invoice Amount | $20,000 |
| Advance Amount (1st payment) | $15,000 |
| Factoring Fee | $2,000 (10% of invoice amount) |
| 2nd Payment | $3,000 ($5,000 Remainder less Factoring Fee) |
Ladies Who Launch
Compare Business Cash Advance
As illustrated, merchant cash advance and factoring can both be very expensive. Whether the expense is worth it in the long run depends on your situation. If your business needs the advance immediately and has no other options, the expense might be reasonable.
Pages: 1, 2, 3, 4, 5, 6, 7, 8,
