Starting a business requires a lot of planning and research. One of the central questions that entrepreneurs must answer is what types of loans they will pursue? Two types of loans commonly used by businesses are Merchant Cash Advances and ACH Loans. The following is a quick overview of the differences between the two.
Merchant Cash Advances
Merchant cash advances are not technically loans; they are actually cash infusions based on sales that take a portion of future credit card sales. Some merchants prefer these terms, as they don’t require merchants to pay back monies by a specific date. Plus merchant cash advances may only take hours to obtain, while other types of loans take weeks or even months.
Before signing up for a merchant cash advance, be sure to read the fine print. Merchant cash advance fees can range from 15% to 80% APR of the amount financed. Still, advance fees are calculated as a factor rate. The amount of cash received is multiplied by a factor rate (usually between 1.14 and 1.48) to determine the total amount owed. The funder receives a fixed percentage of merchant credit card revenues each day until the loan is repaid. Repayment times can range from 8 – 18 months.
ACH or Automated Clearing House, allows lenders to withdraw predetermined amounts from your checking account in certain intervals for repayment. This reduces the risks for lenders who make loans to small businesses with healthy checking accounts, but imperfect credit. ACH loans charge higher interest rates, but merchants will have quicker access to cash than with traditional loans.
FAM ACH Program
First American Merchant’s most popular ACH funding program is “Bank Only.” This program provides funds to merchants without merchant accounts. That means you don’t even need to open a merchant account with FAM to get critical funds within a few days. To qualify for our ACH program merchants must have:
- 500 FICO Score
- 6 Months in Business
- 10k in Gross Monthly Deposits
- Less than 3 NSF’s Per Month
A FAM associate will take a look at the gross monthly deposits in your business checking accounts over the previous 3-6 months. The funds you will receive are determined by the number of deposits and average monthly revenue of your business.
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