Merchant Cash Advance Calculator
Your Estimated MCA Details:
—Understanding Merchant Cash Advances (MCAs)
A Merchant Cash Advance (MCA) is a financial product where a business sells a portion of its future sales revenue to a funding company in exchange for immediate capital. Unlike traditional loans, MCAs are not technically loans; they are a purchase of future receivables. This structure means they are often more accessible to businesses that may not qualify for bank loans, such as those with inconsistent cash flow or limited credit history.
How MCAs Work
When a business accepts an MCA, the funding company provides a lump sum upfront. In return, the business agrees to pay back the advance, plus a fee (known as the "factor rate"), by allowing the funding company to take a fixed percentage of the business's daily credit card sales or overall revenue. This repayment is typically made automatically through the business's payment processor or by direct withdrawal.
Key Terms and Metrics:
- Cash Advance Amount: The total sum of money provided to the business upfront.
- Factor Rate: A multiplier applied to the advance amount to determine the total repayment. For example, a factor rate of 1.20 means you repay $1.20 for every $1.00 advanced.
- Repayment Amount: The total amount to be repaid, calculated as Cash Advance Amount * Factor Rate.
- Holdback Percentage: The percentage of your daily sales that the MCA provider will collect until the advance is fully repaid.
- Daily Collection Amount: The actual dollar amount deducted from your daily sales.
- Estimated Payback Period: The approximate time it will take to repay the advance.
MCA Calculator Explained
This calculator helps you estimate the key figures associated with a potential Merchant Cash Advance. It helps you understand how much you'll repay and how long it might take, based on your average daily sales and the terms offered by the MCA provider.
Calculation Formulas:
// Total Repayment Amount = Advance Amount * Factor Rate
// Daily Collection Amount = Average Daily Sales * (Holdback Percentage / 100)
// Estimated Payback Days = Total Repayment Amount / Daily Collection Amount
// Estimated Payback Weeks = Estimated Payback Days / 7
Inputs Explained:
- Average Daily Sales ($): Your typical revenue generated per day from all sales channels, especially credit/debit card sales.
- Sales Days Per Week: The number of days per week your business operates and makes sales.
- Cash Advance Amount ($): The total lump sum you wish to receive or are offered.
- Factor Rate: The cost of the advance, expressed as a multiplier. A higher factor rate means a higher cost.
- Holdback Percentage (%): The portion of your daily revenue that will be automatically remitted to the MCA provider.
Using the Calculator
Enter your business's financial details and the proposed MCA terms into the fields above. The calculator will provide an estimated total repayment amount, the daily amount that will be collected from your sales, and an approximate timeframe for paying back the advance. This can help you assess the affordability and impact of an MCA on your business's cash flow before committing.
Example Scenario:
Let's consider a restaurant needing quick capital:
- Average Daily Sales: $1,200
- Sales Days Per Week: 7
- Cash Advance Amount: $10,000
- Factor Rate: 1.25 (meaning a 25% fee on the advance)
- Holdback Percentage: 15% (of daily sales)
Using the calculator with these figures:
- Total Repayment = $10,000 * 1.25 = $12,500
- Daily Collection = $1,200 * (15 / 100) = $180
- Estimated Payback Days = $12,500 / $180 ≈ 70 days
- Estimated Payback Weeks ≈ 70 / 7 ≈ 10 weeks
This example shows that the restaurant would need to repay $12,500 in total, with $180 being collected daily from sales, estimated to be paid back in about 10 weeks.
Important Considerations:
- Cost: MCAs can be significantly more expensive than traditional loans when expressed as an Annual Percentage Rate (APR). Always compare costs.
- Cash Flow Impact: Ensure the holdback percentage doesn't cripple your day-to-day operations.
- Repayment Speed: A shorter payback period means less overall cost but a higher daily burden. A longer period spreads the cost but incurs more fees.
- Read the Contract Carefully: Understand all terms, fees, and conditions before signing.