Ivymead Credit in Annapolis, Maryland explains how advances work so an owner can compare one with the funding types that are loans.
At a glance
- Restaurants, Anne Arundel County, MD
Restaurants and other eating places, Anne Arundel County, MD: 1,091 employer establishments (CBP 2023)
- Retail employers, Anne Arundel County, MD
Retail trade, Anne Arundel County, MD: 1,818 employer establishments (CBP 2023)
- Landscapers, Anne Arundel County, MD
Landscaping services, Anne Arundel County, MD: 246 employer establishments (CBP 2023)
How revenue-based financing differs from an MCA for Annapolis, MD shops and restaurants
Revenue-based financing is usually set up as a loan that is paid back as a fixed share of monthly revenue, with a cap on the total, and it often draws on all revenue rather than card sales alone. A merchant cash advance is a purchase of future card receivables: the provider pays a sum now and collects an agreed total as card sales come in. One is credit; the other is a sale of receipts.
For a home builder whose customers pay by draw, check or wire, neither product tied to card sales tends to fit; a credit line drawn against the build schedule usually does. The revenue-based funding article compares the two in more detail.
Is a merchant cash advance a loan? An Annapolis, MD HVAC contractor answer
No. Whatever the marketing says, a merchant cash advance is not a loan: the HVAC contractor sells part of its future card sales to a provider at a discount, and the provider collects its share as those sales settle. There is no interest rate in the agreement, and the cost is set by a factor instead. Without an interest rate to compare, the clearest yardstick is the total the provider will collect, set beside what a loan for the same sum would cost.
What a holdback rate means for Annapolis, MD restaurants and shops with card sales
The holdback is the share of each day's card sales the provider keeps until it has collected the agreed total. With invented figures, at a 12% holdback, $1,000 of card sales in a day sends $120 to the provider. A home builder with few card sales would see the advance collected slowly, and some agreements switch to a fixed daily debit instead, which changes the risk: the debit arrives whether or not the cards do.
How to calculate a factor rate before an Annapolis, MD landscaping company signs
The factor rate is a multiplier on the advance. Illustration only, invented figures: a factor of 1.32 on a $30,000 advance means the provider collects $39,600 in total, and the cost of the money is the $9,600 difference. A factor is not an annual rate: the sooner the advance is collected, the higher the effective yearly cost. A landscaping company should ask how long collection is expected to take at its usual card volume and work out the cost per month.
- Advance times factor equals the total the provider will take.
- That total minus the advance is the dollar cost.
- Divide the total by the expected daily holdback to estimate the days of collection.
- Compare that cost with a loan offer for the same amount.
Merchant cash advance or line of credit for an Anne Arundel County, MD landscaping company?
For a landscaping company, the comparison often favors a line of credit, because its revenue arrives by invoice and check more than by card, and a line charges interest only on what is drawn. A company that does take most payments by card, such as a garden center, may weigh an advance, but should set its total cost against a credit line or a working capital loan first.
Landscaping firms with employees numbered 246 in the county in 2023, by the County Business Patterns count.
How does a merchant cash advance work for an Anne Arundel County, MD landscaping company?
A provider reviews the company's card processing statements, often for several months, and offers an amount, a factor and a holdback. Once the agreement is signed, the provider sends the funds, and collection begins through the card processor or by a fixed debit from the bank account. Collection continues until the agreed total is collected. A merchant cash advance is not a loan, so there is no amortization schedule; what matters is the total and the pace of collection.
An Annapolis, MD card-sales advance read in total dollars, not a factor
Illustration only, invented figures: an Annapolis, MD restaurant takes an advance of $30,000 at a factor of 1.32, so the provider collects $39,600 in total, a cost of $9,600 (our arithmetic). With card sales of $2,400 a day and a holdback of 12%, the provider collects $288 a day, and collection takes about 138 days of card sales.
For comparison, a working capital loan of $30,000 at an annual rate of 18% over 12 months would have total payments of about $33,005, which is $6,595 less than the advance collects in this example (our arithmetic). The real figures in any offer will differ; the habit to keep is turning a factor into dollars and days before signing.
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