MANTIS FUNDING

Understanding Effective APRs and Merchant Cash Advances

 

 

If you are a small business owner, and if you need some quick cash, then merchant cash advances are a way to get instant liquidity. Since the process is fast, and no stringent guidelines are followed, it is often a preferred option amongst small business owners when cash is needed urgently.

 

However, many businesses are caught by surprise when they get to know that their capital comes with a high annual percentage rate or APR, in short. And this happens quite frequently because most lenders do not disclose the APRs, and one gets to know only when one signs the dotted line.

 

Whether APR should be disclosed or not, is a question of debate. While many schools of thought say that APR should be disclosed, merchants think that it is unnecessary to make things confusing. As a business owner, all that matters to you is you get access to quick cash. But knowing the effective APR can help you get an estimation to compare between lenders and for that, you need to understand how APRs work.

 

 

What is an APR?

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An APR is the annual percentage rate that your merchant cash may accumulate over a year. However, it is to be remembered that different lenders structure their merchant cash advances differently, and hence it becomes a bit tricky to calculate the APR rate. Technically, speaking APR is the interest rate, along with the fees charged by the lender so that it is easy to compare the numbers.

 

While selecting your funding offer, it is important to compare the APR between different lenders along with studying individual lender profile. For example, going through Mantis funding will give you a better insight to make an informed decision. It gets tricky as the merchant offers from one lender may look costlier than others, but when you compare the APR, the overall cost could be quite different.

 

However, the term length plays an important role here that many business owners miss paying attention to. Again, a merchant cash advance that may have more fees may not be the first choice among business owners, but when you consider the APR, it may be spread over the years and hence becomes a better choice. Furthermore, business owners also need to choose between lower monthly payments and an overall lower cost of borrowing.

 

Hence, it can be said that APR is not the only deciding factor, business owners need to consider many other factors as well before making an informed financial decision.

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From the above discussion, it can be said that it is not possible to calculate an APR on merchant cash as they use a factor rate rather than the interest rate, but one can still estimate an APR. Hence it is known as effective APR.

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If you are planning to go for a merchant cash advance to give your business a boost, then consider different factors before making a decision. Be sure to use the information in this article to ask your lender for all the details. For example, going through the Mantis Funding cash advance page can help you understand their merchant cash advance and estimate and effective APR.