Mintmead Funding, a small-business funding service in Louisville, Kentucky, offers a revenue based financing calculator for merchant cash advance arithmetic: total remitted, cost in dollars and estimated days of collection from the advance, factor rate, holdback and daily sales. An advance is not a loan; the calculator does not compute an APR.
Advance, Factor Rate, Holdback and Daily Sales Explained
- Advance: the cash paid to you before any fees.
- Factor rate: the multiplier that sets the total to be remitted.
- Holdback: the percentage of daily card sales collected.
- Daily sales: your average card sales per sales day.
Illustration only, invented figures: a $25,000 advance at a 1.32 factor is $33,000 to be remitted, a cost of $8,000. With a 10% holdback on $2,000 of daily card sales, $200 is collected each sales day, so by our arithmetic collection takes about 165 sales days.
How to calculate a factor rate and points, as a funder would
A funder sets the factor rate to cover its cost of money, expected losses and profit, and may also charge points, an upfront fee taken as a percentage of the advance. To see the full cost, add the fee to the factor cost: on a $25,000 advance, 2 points is $500, so the illustration above costs $8,500 in all by our arithmetic, and the cash you receive is $24,500. The calculator shows the factor cost; add any points by hand.
Factor rate to APR calculator
This calculator does not convert a factor rate to an APR. An APR depends on how quickly the amount is collected, which depends on your sales, so any single APR figure for an advance is an estimate. To compare an advance with a loan, put both in total dollars over the same months, and ask the funder for any cost disclosure it provides.
Revenue based financing vs factoring around Louisville, KY
Revenue based financing collects a share of future revenue; factoring buys invoices already issued and collects them from your customers. A restaurant with daily card sales is the kind of business revenue based products are aimed at; a distributor billing other businesses on terms is the kind factoring is aimed at. The restaurant funding page sets an advance beside a line of credit.
Merchant cash advance vs revenue based financing, explained for Louisville, KY owners
The terms overlap. A merchant cash advance is a purchase of future card or bank receipts at a discount, collected as a share of sales. Some revenue based financing is structured the same way; some is structured as a loan with payments tied to revenue. Read the agreement to see which you are signing. The merchant cash advance page covers agreements and reconciliation.
Factor rates outside business funding, such as Pag-IBIG housing loans: a Louisville, KY primer
The phrase factor rate appears in other kinds of finance too, for example in tables some lenders publish to compute monthly payments per thousand borrowed, including housing programs abroad such as the Philippines' Pag-IBIG Fund. Those factor rates are payment multipliers on an amortizing loan, a different idea from an advance's factor rate, which multiplies the whole amount advanced once.
Factor rate amortization for owners in Jefferson County, KY
An advance does not amortize the way a loan does: there is no interest recalculated on a falling balance. The total to be remitted is fixed at the start, and each day's collection reduces what remains. That is why paying an advance off early does not always lower its cost; ask the funder whether any early-payoff discount applies. More calculators and guides are on the resources page.
By Mintmead Funding · Updated