When it comes to borrowing money, it's vitally important to understand exactly how you’re expected to repay your debt. In fact, critical to deciding your lender and funding type is reviewing the repayment terms. For example, after learning more about small business loans and merchant cash advance funding, you may decide the latter is a better option.
With that said, here is an overview of merchant cash advance repayment terms:
Firstly, it’s important to point out that a merchant cash advance isn’t a loan. This makes its repayment process slightly different than that of a business loan.
Remember, this type of financing is more of a transaction. It enables you, the business owner, to sell a certain percentage of your future credit card sales for capital, now. So as opposed to a loan, merchant cash advance funding doesn’t require the same monthly repayment amounts. This will instead vary, depending on that particular month’s credit card sales.
You recently qualified for a merchant cash advance. You sell $27,000 your business’ future credit card sales for $20,000. You’re expected to pay 10% of your business’ credit card sales each month until your provider receives $27,000 (so a return of 35% to the cash advance provider), in order to complete the transaction.
This percentage does not change, regardless of your credit card sales—which means the amount your provider receives each month will vary.
Consequently, there isn’t a set deadline stipulating exactly when you’ll be deemed paid in full. However, you also won’t have to worry about missing a payment if your credit card sales are low one month, since you’re only required to pay 10% of credit and debit card sales processed.