BUSINESS FUNDING ADVANCE EXPLAINED

How does a Business Funding Advance actually work?

A Business Funding (to buy the future credit/debit card receipts or gross receipts/deposits of a business) is not a loan. It does not have a fixed monthly term, fixed payment size or interest rate. The Business Funding and Business Advance funder (“Funder”) will pay a discounted price (the funding amount) for those future receipts. Those receipts will be automatically collected by a third party credit card processor, over time, and remitted to the Funder. Or a Funder might offer alternative collection methods, such as periodic ACH-based debits from merchant’s business bank account, if the merchant qualifies. There are 3 items that are fixed in a Business Funding transaction:

(1) Total dollar amount of credit/debit card receipts or gross receipts that the Funder buys from the business (“RTR” or “Payback Amount”);

(2)Business Funding amount paid for those receipts (“Purchase Price” or “Funding Amount”); and

(3) The percentage (%) of the credit/debit card receipts or gross receipts of the business due the Funder, until the total RTR has been received by the Funder (“Holdback” or “Specified Percentage”). A Discount Percentage is the difference between RTR and Purchase Price, expressed as a % of RTR. A Factor Rate is RTR divided by the Purchase Price.

What are the amounts and terms for Business Funding?

In the merchant and business Business Funding industry, Funding Amount for the initial advance ranges widely: (i) from the dollar size equivalent of 1% to over 100% of gross monthly sales; or (ii) from the dollar size equivalent of 5% to several hundred % of average monthly processing volume of credit/debit cards (when cards are a small portion of gross sales). Cumulative Funding Amount over time can be significantly larger via a program of installments. Industry-offered Discount Percentages range widely from 6% to 47% of RTR (e.g. implied Factor Rates of 1.07 to 1.60). Holdbacks range from 1% to 35% or more, dependent on many variables, including the relative proportion of credit/debit card-based sales to gross sales for the business. Projected (not fixed) payback terms range widely from 1 month to 36 months.