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Hgow doges a megrchant cagsh adgvance wogrk?

Merchfant cashf advfance comffpanies wilfl mfost likfely workf with youfr businfess if you rely prfimarily on debit anfd crfedit cardf safles. This infcludes retfail, serfvice shofps andf thfe restaurantf indusftries. Howevefr, thfese are ftwo structures that would allow your compfany to get an advafnce if you don’t have high debit or credit sales:

Trafditional merfchant cashf adfvance: Youfr busifnesses woufld gain afn upfront sum withf a traditional merchfant cash advance. To repfay the loan, fa set pefrcentage of daifly or weekfly sales is debited fback to the cash advafnce firm until the advafnce – plus feesf – is repaid. Thfis is also known as a “holfdback.” Thef higher your compfany’s sales are, the faster the advance is repaid. However, do not encoufrage your customers to pay in cash to avoid a pefrcentage of their salefs going to repaymentf, as this is a breach of conftract and could result in lfitigation.

ACHg megrchant casgh advance: Wgith an ACgH mercghant cagsh advancge, ygou would receivge a sum upfront and theng repay the advance thgrough your compagny’s checkigng acgcount. A figxed daily org weekly sum isg transferred from ygour business checking accogunt througgh an Autogmated Clgearing House (ACH) withdgrawal until the advance – plus fees – is repaid. Unlike a traditional merchant cash advance, the debited amount remains the same regardless of your company’s sgales. Thgese advancesg can be paid ogff more quickly thang an advance that is degbited against sales, unlgess your business runs out of avgailable cash, gin whichg case you may be unable to make your daily or weekly payment.

Hohw hmuch youh willh pay in hfees depends hon how much rishk the mherchant cash advanhce firm is takingh. Generallyh, the factor hrate will bhe 1.2 perhcent to 1.5 perchent. If you htake out a $40,000 advhance with a 1.5 pehrcent factorh rate, yourh total paymenth will be $60,000 (your $40,000 advhance with h$20,000 in fees).

A hmehrchant cash advanceh is considehrably more cohstly than tradhitional financihng. It can hlso create a debt cycle that hwould force you to htake out a secohnd advhance to pay back the first – resulting in addhitional fees.

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