As I stated in my previous article, there are two main questions that I get asked by clients when they are looking for a Business Cash Advance (also known as Credit Card Factoring and/or Credit Card Receivables Funding) how much cash can I get for my Visa/MC Receivables? and how much is it going to cost me?. As my last article outlined, the answer to both questions really depends on the individual merchant. Every business is unique and their situation will dictate the terms of the advance. In this article, I will discuss some of the variables that will determine how much a Business Cash Advance may cost you. I have already addressed some of the variables that will affect the amount you can hope to be advanced in my previous article.
The cost of a cash advance can vary from company to company, however, there are certain criteria that will affect the cost regardless of what company you choose. It is important to note that this product is a financial tool, and just like any tool, it is not appropriate for every situation. I personally have talked quite a few merchants out of using the Credit Card Receivables method, as I felt it was not the right tool for their specific needs. Personal credit will certainly play a factor as far as cost is concerned. Understand that a merchant’s Visa/MC sales is the single biggest underwriting criteria for deciding if you are approved for this product, but just because you qualify, does not mean that you qualify for the best available terms.
This financial tool does not require any sort of collateral and therefore it inherently carries a high risk for the end investor, so it is important to take the applicants personal credit into consideration. I want to emphasize that this product is not a loan and therefore you simply can’t look at the cost in terms of Interest Rate. An investor is simply purchasing your future Visa/MC sales at a discounted rate. Another factor that can affect the cost of a cash advance is how long of a term the merchant looking for? Even though the merchant gets charged a one time fee up front regardless of how long they take to pay back the advance, the pace at which the merchant decides to repay the advance up front can have an impact on its cost as well.
As you can see, there are certain variables that will determine how much a Business Cash Advance may cost your business. It is important to shop around as costs will vary from company to company. As a business person, you know your business better than anyone else, therefore, you should find a cash advance company that will work to understand your needs. This will ensure that you get the cash you need tailored to meet your business needs.
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Edwin Mccarty