[BankComplianceGuy]

I sure hope the CFPB is going to be able to lend money at a lower cost, or direct small businesses with horrible personal credit, bank statements and financials to secure a loan elsewhere.

That's a strawman argument. Says nothing of usury caps or minimum qualification requirements, simply complaints. That will likely start with those merchants that got duped by the more pernicious brokers or funders.

[bdshaw]

I have to think if I want to reduce my standing to only Sir Shaw

[FUNd]

What's the equation to figure out the actual APR from a factor rate?

Thanks in advance!

Rate would indicate that there is interest accruing at specifed percentage over a specified amount of time. The 'rate' at which interest accrues is of importance when making LOANS to people perhaps. But since these are CASH ADVANCES, interest doesn't accrue at any rate. As the 'CEO' of an ISO I would expect you and your team to know this. It's a fundamental. No wonder this industry is a mess.

[bsmith]

What's the purpose of converting it to APR? Almost same as shooting yourself (and the concept of MCA) in the foot

I know I had this question before as well. Not to use the information day to day in our line of work, but for the intellectual curiosity of how it actually works. Some of us just like to know the how or why.

[bdshaw]

There's nothing wrong with intellectual curiosity. If nothi,g else it broadens your knowledge base and makes you more interesting at cocktail parties.
However there's a practical reason to understand how and why things work.
I believe that once you understa

[bdshaw]

sorry....my phone went dead.
The more you understand about the what and whys the greater your ability to understand variables that get thrown at you.
While your competitors must go back to lenders for answers you can figure them out on your own showing your clients you know your business.
Bob

[Cfairbank]

Rate would indicate that there is interest accruing at specifed percentage over a specified amount of time. The 'rate' at which interest accrues is of importance when making LOANS to people perhaps. But since these are CASH ADVANCES, interest doesn't accrue at any rate. As the 'CEO' of an ISO I would expect you and your team to know this. It's a fundamental. No wonder this industry is a mess.

Not sure I follow this -- most loans that state APR and that would be an alternative to a cash advance, the interest doesn't accrue, it's paid daily/weekly/monthly. I agree APR is not a good metric for cash advance because (a) it's a purchase and sale, not a loan and (b) there is no term, so you have no idea what the actual repayment time period would be that would allow you to calculate an APR.

And more and more companies are offering short term loans in the market as an alternative to cash advances. As long as you aren't pitching APR, not sure why it's a problem to understand how to calculate it.

[bsmith]

sorry....my phone went dead.
The more you understand about the what and whys the greater your ability to understand variables that get thrown at you.
While your competitors must go back to lenders for answers you can figure them out on your own showing your clients you know your business.
Bob

Precisely

[FUNd]

Not sure I follow this -- most loans that state APR and that would be an alternative to a cash advance, the interest doesn't accrue, it's paid daily/weekly/monthly. I agree APR is not a good metric for cash advance because (a) it's a purchase and sale, not a loan and (b) there is no term, so you have no idea what the actual repayment time period would be that would allow you to calculate an APR.

And more and more companies are offering short term loans in the market as an alternative to cash advances. As long as you aren't pitching APR, not sure why it's a problem to understand how to calculate it.

I wouldn't say it's a problem, but why calculate it if it has no application in either the sales of the product or in the actual mechanics of the way the product works? Every amateur out there can't swim the "What's your rate?" question properly, and when you are running your own company, and are pissing in the merchant pool with dumb calculations that have no basis in fact, it furthers the consumer perception that these are uber "high-interest loans", when they are not.

My point is, before you start your own company, know what you are selling.

[Cfairbank]

fair point, fund, and I agree, folks need to understand what they are selling.

We've worked with Triton and they've closed both MCAs and loans for us -- Michael and his team get it.

[jotucker1983]

I agree with FUNd in that if the product being pushed is indeed going to be a merchant cash advance, if the merchant tries to calculate with you some sort of "APR", then that conversation needs to be shut down immediately with education provided to the merchant on exactly what this product is.

The MCA is a contracted purchase of receivables in exchange for an advance of a particular amount of said receivables today (rather than waiting to receive them tomorrow). There are no interest rates, no origination fees, there are no fixed payments, and there are no set payback cycles, all of which are characteristics of a loan product.

So for example, if I state to a merchant that I want to purchase $50,000 of his credit card receivables in exchange for giving him $40,000 today, then state that I will collect said purchase through a 15% daily holdback on his monthly processing volume, if he does $30k every month going forward then I will have collected my entire purchase amount in just over 11 months. If he ends up only doing $20k in processing a month going forward, it might take nearly 17 months for me to collect my purchase. If he exceeds expectations and does $50k a month going forward, then I will have collected my purchase in just under 7 months.

If I want to strategically "target" a deadline purchase range, then I need to strategically set the holdback percentage in such a way to achieve said goal.

What's "set" in this example is the purchase amount ($50,000), the advance amount ($40,000), the cost factor of 1.25 and the holdback percentage of 15%. The time period of when I collect my entire purchase amount is not "set".