Alternative lenders that offer short term working capital loans to business owners typically use Revenue Factors otherwise known as Merchant Cash Advance.
Factor rate is the "discount" applied to the amount of future revenue secured by the lender. If I purchase $137,000 of future revenue to be paid back over time with incremental payments, how much cash would I pay for it now? If, for example a factor rate of 1.37 was applied, the merchant would receive $100,000 in cash to use now until the payback amount of $137k was reached.
Over time, the total cost of capital is spread out based on the term or, how long you have to use the proceeds of the loan. Using the same example as before let's assume the $100,000 was a term loan at $12% for 5 years: The total payback for that term would be $160,000 using simple interest calculation.
Here we see that the total cost of a 5 year term loan at 12% ($60k) is nearly twice as much as the cost of the same amount in cash advance ($37k) but the term, otherwise known as the amount of time you have to use those funds, is much longer. Time IS money after all lol!!
Revenue factors serve an important role in the operations of most US businesses because they fulfill a critical need for business owners to access immediate capital to cover urgent expenses or to capitalize on sudden opportunities.
Although they are more expensive than conventional loans they are also available immediately and not in 6 weeks like most other facilities. EIDL stimulus loans from the SBA are taking 7-8 months to fund, have these folks EVER run a business OMG!
For business owners seeking optimal funding for their capital needs revenue factors are an indispensable tool when used properly. Call me for a quote if your business needs immediate capital with optimal terms.