Posts Tagged ‘Merchant Loans Rates’
Merchant Loans Rates
Are you interested in a merchant cash advance for your business? If you need a loan to keep making payments to vendors, employees, or for another reason, it is helpful to know what the merchant loans rates might be. Merchant loans rates can also be considered as the interest rate you are charged for the cash advance.
How a cash advance works is that you get a set amount of money in advance. You will pay this back through a percentage of credit card sales. A processing fee may be necessary to set up the account. There is also the merchant loan rate (interest) charged on the cash advance.
The interest rate is laid out as an annual percentage rate when you look at most merchant cash advance companies. This business loan rate is often over 400 percent APR. It can be more than 1000 APR from some companies. In business, saving money especially on a loan is imperative; thus, looking at a company with a lower rate is much better.
The annual percentage rate is calculated down to a daily periodic rate. This type of rate is what you are charged per day for the merchant cash advance. The interest is added to the actual percentage taken from daily credit card sales.
For example, a company says they take 18 percent of your credit card sales on a daily basis. Part of this 18 percent will go to the principle balance and the other will be the interest owed on the loan.
Periodic rate is easy to figure out for a daily basis. Say your company is open 7 days a week; therefore, the merchant cash advance gets a payment on all seven days. You also remain open 365 days a year, not even closing for Thanksgiving, Christmas or New Year’s.
The daily periodic rate can be found by taking 400 percent and dividing by 365 days. The daily interest rate is roughly 1.09. The 18 percent then means you pay about 17.91 percent to the principle and 1.09 percent of interest.
In this calculation it is important to remember that merchant cash advances are meant to be short term loans. The longer the loan is unpaid the more you pay in interest. Paying 400 percent in interest is highly expensive when you consider that most small business bank loans are around 5 to 10 percent APR. The daily periodic rate is way under 1 percent. The point is when looking at merchant loans rates you need to be careful in how much interest you are supposed to pay to the company. Looking for the one with the lesser rate is best when you have to obtain the cash advance.