This calculator from Glenford Financial, a small-business funding broker in San Angelo, TX, takes a merchant cash advance offer's amount, factor rate and holdback with average daily card sales, and estimates the total the funder collects, the dollar cost and the days to remit. The page adds a coverage test against daily gross profit. A merchant cash advance is not a loan.
What the calculator shows
The advance amount times the factor rate gives the purchased amount, the total the funder will collect; the calculator labels it total payback. Subtracting the advance gives the cost of the advance in dollars. If you enter the holdback and average daily card sales, it also estimates the daily remittance and the number of business days until the purchased amount is collected. Enter the figures exactly as written in the funder's offer; a merchant cash advance is not a loan, and the funder sets every term.
The coverage test
Knowing the remittance is only half the question. The other half is whether the business can afford to give it up every day. Work it out in four steps:
- Daily gross profit. Average daily sales times your gross margin.
- Daily fixed costs. Monthly rent, payroll, insurance and other fixed costs divided by the days you are open.
- Cash left before the advance. Daily gross profit minus daily fixed costs.
- Coverage. Cash left divided by the daily remittance. Below 1, the remittance takes more than the business earns each day after its costs.
A worked example
Hypothetical figures, for illustration only and not based on any offer: a restaurant averages $2,000 a day in sales and keeps 65 percent after food and packaging costs, so daily gross profit is $1,300. Its fixed costs work out to $900 a day, leaving $400. A daily remittance of $250 gives coverage of 1.6: the business can carry it, with $150 a day of cushion. A remittance of $450 gives coverage below 1, meaning every day of remittance eats into cash the business needs for its own bills.
Run the test on a slow month too, not only an average one. With a fixed daily debit, the remittance stays the same when sales fall unless a reconciliation is granted.
What the result leaves out
- Other charges the funder may deduct from the advance at funding
- Loan payments or other advance remittances the business already makes
- Weekends and holidays, if the funder debits only on business days
- Changes in sales; the calculator assumes your average holds
Merchant cash advance example: what to compare
Put the dollar cost of the advance next to the total interest on a short-term working capital loan or a line of credit for the same need, and compare how fast each one takes money out of the business. The merchant cash advance page explains holdbacks, reconciliation, stacking and default, and the guides and calculators page lists the other tools.
By Glenford Financial · Updated