Understanding different merchant cash advance (MCA) payment structures is key to getting the right fit for your client’s business needs. Each structure affects cash flow, flexibility, and how risk is managed for both the broker and the client. The wrong choice can tighten a business’s finances more than it helps, while the right structure can support growth without causing unnecessary pressure.
Many MCA brokers rely on tools like an MCA loan calculator to give clients a great experience during the decision-making process. This helps break down how repayments will look under each structure, making it easier to set proper expectations. Knowing the details of how each payment style works such as fixed, variable, daily, or weekly can go a long way in helping you recommend options that your clients can handle without strain.
Fixed Percentage Of Sales
A fixed percentage of sales repayment structure is exactly what it sounds like: the client repays a set portion of their daily or weekly sales until the total advance amount is repaid. The percentage doesn’t change, no matter how high or low sales volume gets on a given day. This structure is often described as predictable from a planning standpoint.
Here’s a look at the upsides:
– It aligns repayment with income. As the business earns, it repays. If sales dip, so do the payments.
– There’s no fixed dollar amount due each day, easing the stress during slower periods.
– It fits businesses that have fluctuating or seasonal revenue.
But it’s not perfect for everyone.
– If a business consistently performs well, they may wind up repaying faster, which can feel like tighter cash flow.
– Since the percentage is non-negotiable, lower-margin businesses might feel the squeeze on profits.
A good example would be a small coffee shop in a downtown area with steady peaks during weekdays and quiet weekends. Using a fixed percentage structure helps keep their repayments manageable, matching their customer flow. They’re paying more when they’re earning more and less when fewer people walk in.
Variable Percentage Of Sales
A variable percentage structure offers some flexibility, but it’s a bit more complicated than the fixed model. Instead of locking in a static rate, the repayment percentage may shift within a preset range depending on performance, seasons, or agreed-upon sales targets. Businesses may be expected to submit regular sales reports or allow access to their sales tracking platforms so the adjustment can be made accordingly.
This kind of setup is less common, but it does serve a specific purpose:
– Payments shift with actual earnings, offering a tailored approach.
– It works for businesses with known busy and slow periods, like wedding venues or event-based services.
– There might be more trust and collaboration between lender and borrower due to active adjusting.
Potential drawbacks include:
– Planning payments becomes tricky since there’s no exact number to count on.
– Some businesses may get overwhelmed by the changing rates if they aren’t tracking their cash flow closely.
For the right business, though, it can work well. A florist shop that spikes in sales around holidays but cools off afterward might appreciate the breathing room during slower times. The payments drop when their sales dip and rise again once things pick back up, helping avoid cash burn when it’s least affordable.
Daily Payments
The daily payment structure is one of the most common options for merchant cash advance repayment. With this setup, a fixed dollar amount is withdrawn from the business’s account every business day until the total owed is paid off. While this provides a consistent and straightforward process, it’s not for everyone.
One of the most appealing things about daily payments is how easy they are to plan around. Since the amount doesn’t change, businesses can better anticipate how much money will be left in their account each day. This can be helpful for companies that maintain a steady cash flow throughout the week.
However, this structure can be too rigid for some businesses. If sales suddenly slow down or unexpected expenses pop up, meeting the daily amount can become stressful. It may work well for retail or service-based businesses that operate five to seven days per week and process consistent credit card transactions.
An example might be a hair salon that sees steady foot traffic every day. They’re swiping cards all week long, which gives them a reliable flow of income. A daily payment model fits their schedule and helps them stay on track with zero surprises.
Weekly Payments
Weekly payments follow a similar pattern to daily payments, but instead of money being withdrawn every day, the total is collected once a week. The amount may be fixed or it might reflect an agreed-upon percentage of the week’s sales.
Here’s what to keep in mind with weekly payments:
– Good fit for businesses with average-to-high revenue that peaks on certain days, like weekends.
– Easier on day-to-day cash flow than daily withdrawals.
– Less administrative stress than daily payments, especially for business owners who like to see lump-sum movement once a week.
Still, this structure has its drawbacks. If a business goes a week with low sales or hits multiple days off, a weekly pull can take more than what’s comfortable. Also, if the withdrawal day is unlucky, like following a slow weekend, it might leave the account tight for several days.
A good candidate for weekly payments might be a catering company that pre-books events. They may bring in large amounts of revenue from a few jobs, but those jobs are not evenly spaced out on the calendar. A weekly structure gives them space between events to manage other costs before repayment hits.
Picking The Right Structure For Your Client
Each repayment structure can make or break how a client experiences their MCA. That’s why matching the right payment option to the client’s day-to-day financial habits is key.
Here’s a quick guide for thinking through it:
1. Start by reviewing the client’s average daily sales volume.
2. Take a close look at their busy versus slow periods during the month or year.
3. Ask if their income is consistent or if it swings based on season or events.
4. Find out how they currently handle overhead and operating costs.
5. Talk through how comfortable they are with daily versus weekly commitments.
Using a tool like an MCA loan calculator can give your clients an idea of what their payments would look like across different structures. It makes the numbers easier to digest and helps avoid surprises later. When clients understand what their options really mean for their business, they’re more likely to commit with confidence.
Helping Clients Find the Best MCA Fit
Giving your clients payment structures that align with their financial patterns builds trust and helps support long-term partnerships. A fast-growing business with steady card sales might thrive with daily payments, while a seasonal company may feel more comfortable with flexible or percentage-based options. Taking the time to explore the specific pros and cons of each structure helps ensure your clients get what actually works for them.
As a broker, your ability to guide clients through these choices will set you apart. Helping them clearly understand how MCA repayment works and how to use tools like an MCA loan calculator to break it down leads to smarter deals, better outcomes, and satisfied clients who are more likely to return.
If you’re working to close more funding deals with the right tools, using an MCA loan calculator can help your clients better understand payment terms and make informed decisions. TMR Now is here to support you every step of the way. Start Now.
