Can my business afford an mca merchant cash advance?

How can I figure out if my business can afford an mca merchant cash advance?   Calculate if your business can afford a business loan.   If so, step by step instructions on how much of business loan or advance your business can afford.   To get more information or apply for an advance safe for your business, begin below.

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Can my business afford an mca merchant cash advance?

  1. Find the lowest deposit month of your last 3 months business checking account deposit totals.   Example, $50,000.
  2. Take that figure and multiply it times .20.  This is approximately the amount you should conservatively be taking for an mca merchant cash advance.
  3. Contact mca companies and apply.   If you are approved for more than your recommended safe amount,  do not take more unless you are sure you can make the payments.
  4. Close the cash advance and funds are deposited into your account.

How much of an advance can my business afford? Example, how to calculate:

Below is an example of how to estimate a conservative funding amount.

  1. Look at your most recent (3) months business checking account statements.  Find and add the amount of your total deposits.  Most banks give you one amount and list it as “total deposits”.   Some banks will also have a separate entry for electronic deposits.  If your bank itemizes different deposit types, add them up.  Example figures are below.
    December total Deposits $25,000
    January total Deposits = $15,000
    February total deposits = $19,000
  2. The lowest month is January at $15,000 in total deposits.   Multiply $15,000 X .2 = $3,000.     $3,000 is a safe and conservative amount.   
  3. A more aggressive amount is $15,000 times .5 = $7,500.
  4. Figure out your daily payment.   On average, the term of an mca merchant cash advance is approximately 6 months.  For $3,000,  your daily payment will be approximately $3,000 X 1.35 % (6 x 21) = $155.77 per business day.    There are approximately 21 business days per month.   The rate factor used here is 1.35.
  5. If you can handle this payment for 6 months, you can close the transaction.
calculate how much of an mca merchant cash advance your business can afford. Get conservative and aggressive amounts.

Other factors that affect offer and approval amounts:

Depending upon other factors such as time in business, average daily balances and amount of revenues, the funder may offer a much larger business loan or advance.    Your business may be able to handle a larger amount.   The purpose here is to determine what is a conservative and safe amount.

More disposable income with higher deposits

Businesses with higher gross deposits can often afford a higher advance. This is because the same percentage of disposable income equals a higher dollar amount. If your business has fixed total expenses of $7,500 out of $10,000, then it has disposable income of $2,500.
When gross deposits are $100,000 and fixed expenses are $75,000, then disposable income is $25,000.
In the later case, a business will be able to handle a larger merchant cash advance, because their total gross deposits are higher.

Many businesses continue to take out merchant cash advances by renewing them once they are paid off.  If your business is taking out a merchant cash advance for the first time, try a lower amount first to make sure your business has the cash flow needed and can handle it.   If so, you can take out a larger amount on a second advance.

FAQ, Frequently asked questions can my business afford an mca merchant cash advance?

I need an mca merchant cash advance payment I can handle and pay. I need a cash advance safe for my business. How can I get that?
Refer to the formula above to figure out how much of a payment your business can afford. Also consider how much that would be per month. When businesses takes out an mca merchant cash advance with a daily payment, they often do not calculate how much that will be per week and per month.
How can I get a business loan that I can pay? I do not want a cash advance to put me out of business
Refer to the affordability calculations above. Every business is different but you can estimate approximately how much your business can pay. Start out with gross revenues, then calculate an average % of gross deposits. Daily mca cash advance payments should not exceed approximately 15% to 20% of gross deposits.
What if my business has a slow month? Can I just lower the daily payment or should we get a lower advance to begin with?
It is best to take your lowest month and take a percentage of that. You can still take a percentage of the average of your last three months to decide how much you can afford to repay as well but then you may not be able to repay if you have a low month.
We are a seasonal business. How can we figure out if we can repay a merchant advance?
Review your payback months. This means that you need to figure out what your business usually does during the months it will be repaying the cash advance. Are those high months for your business or low month. It does not matter if your business does well in the fall if summer is usually slow and your repayment is in the summer.