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Vent: lenders keep quoting me the APR on a merchant cash advance and calling it a real rate
I've been digging into merchant cash advances for the small machine shop my dad left me, and I keep running into the same thing. Guys in these broker chats keep saying their factor rate of 1.35 is basically a 35% loan, and that is just not how it works. A factor rate of 1.35 on a $20,000 advance means you pay back $27,000, but if they pull that over 6 months, the real annual rate is way past 60% because you are paying down the balance the whole time. I watched a broker in Phoenix do this math live on a call and a guy signed anyway because the daily payment looked small. The part that gets me is the daily ACH pull, because weekends and slow weeks do not care about your cash flow. Has anyone here actually worked out the real cost on one of these versus an SBA 7(a), because I keep getting told I am overthinking it.
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the_hayden1mo ago
Ran the numbers on a $20k advance at 1.35 over six months myself and came out around 68% annual, and that was before the origination fee they slid in at closing. My SBA 7(a) guy quoted me prime plus 2.75, so even with the paperwork headache it was not close. What killed me was the daily pull of like 200 bucks hitting every single day, including Saturdays, so one slow week and I was already behind. The factor rate thing is just a sales trick to make 35% sound small when it is really way worse.
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