[shieldfunding]

funded a $75k deal recently with rapid on their select/preferred program 16% over 12 month but with the 2.5% up front fee came out to 18% fee .. merchant calls me after he got funded screaming that I'm a loan shark ?? that it was really 40% APR because it was taken out daily. sends me this link
http://www.calculatorsoup.com/calcul...r-advanced.php

any accountants on this forum able to explain if this really works out to be 40% Apr .. i did tell him it wasn't a loan it was buying his receivables but he said the 1st page of contact say " business loan agreement '" ?

[NoBigDeal]

funded a $75k deal recently with rapid on their select/preferred program 16% over 12 month but with the 2.5% up front fee came out to 18% fee .. merchant calls me after he got funded screaming that I'm a loan shark ?? that it was really 40% APR because it was taken out daily. sends me this link
http://www.calculatorsoup.com/calcul...r-advanced.php

any accountants on this forum able to explain if this really works out to be 40% Apr .. i did tell him it wasn't a loan it was buying his receivables but he said the 1st page of contact say " business loan agreement '" ?

I'm not an accountant, but what does the method of re-payment (i.e. daily pull) have anything to do with the total repayment and how it factors into being a higher APR?

[Chambo]

he's *****ing like this about Rapid's Preferred program? Sheesh, I would HATE to see reaction to a B-C lender deal

[shieldfunding]

check link

[shieldfunding]

I'm not an accountant, but what does the method of re-payment (i.e. daily pull) have anything to do with the total repayment and how it factors into being a higher APR?

check link. supposedly he sent it to a huge accounting firm and it does seem to come out that way .. curious to know what it is legally considered

[Funder Mark]

I'm not an accountant, but what does the method of re-payment (i.e. daily pull) have anything to do with the total repayment and how it factors into being a higher APR?

If I understand it properly, APR has to do with usage of the money, with how much is usable at any given moment. So take 3 LOAN offers of $100k over 12 months, all at a 1.30 rate. 1st has a daily payment, 2nd is weekly, and 3rd is monthly. Even though at the end of the day each is paying $30k on the money, the effective APR would be very different.

Anyone who has a better explanation please feel free to correct me.

[shieldfunding]

If I understand it properly, APR has to do with usage of the money, with how much is usable at any given moment. So take 3 LOAN offers of $100k over 12 months, all at a 1.30 rate. 1st has a daily payment, 2nd is weekly, and 3rd is monthly. Even though at the end of the day each is paying $30k on the money, the effective APR would be very different.

Anyone who has a better explanation please feel free to correct me.

I'm assuming that since its daily the principal is paid back faster when calculating APR even though it's still 12 month term .. is that correct ?

[Funder Mark]

I'm assuming that since its daily the principal is paid back faster when calculating APR even though it's still 12 month term .. is that correct ?

That is my understanding of how APR works, disclaimer I could be 100% wrong.

[Matrix1]

https://www.loanme.com/Blog/Archive/...ances-Revealed

[Sachip24]

did he not see the total payback on the contract?

[Michael I]

Breakout calculator is good www.breakoutfinance.com/apr-calculator/
But those numbers do make sense

[Michael I]

Your mistake also is calling it 16% .it should always be referred to as a 1.16 factor

[anonymous]

That is my understanding of how APR works

yep, learned that the hard way here on df.

...loanme

[shieldfunding]

Your mistake also is calling it 16% .it should always be referred to as a 1.16 factor

i did but after the fact he's now saying the contract says clearly "business loan agreement '' which means it cant be called factoring ..

[shieldfunding]

did he not see the total payback on the contract?

he did . and he also said after calling me a loan shark that i saved him because he didn't have $$ to cover payroll...

[anonymous]

he did . and he also said after calling me a loan shark that i saved him because he didn't have $$ to cover payroll...

did you then laugh, audibly?

[shieldfunding]

did you then laugh, audibly?

i couldn't because he is a big existing client of mine for another completely different business not finance related . which teaches me yet again don't mix businesses even if you think your helping the customer

[Amity]

Daily, weekly, monthly does make a difference in an APR but that is not the big factor in this case.
Think of it this way.

If it was a amortizing loan, like a mortgage, at a 16% with a level payment, the amount of interest would go down with every payment as the loan balance dropped. So by the end of the term if you add up the interest paid it and divided it by the loan amount it would amount to about 8%.

But with an MCA you are charging a fixed factor, plus the upfront.

Put another way, an amortizing loan at 16% for a year with daily payments would result in a total of $81,176.33 paid over the year compared to $87,000 in your case. Or compared to a loan he would pay almost $6,000 more.

I don’t get quite to 40% but you get the idea.

[jfeinberg]

It is based on the time value of money. The more frequent payments the higher the APR, daily payments will be a higher APR than weekly payments would be. For instance a 1.35 over 12 months is actually 68.83% with daily payments, weekly around 55%.

[Zach]

funded a $75k deal recently with rapid on their select/preferred program 16% over 12 month but with the 2.5% up front fee came out to 18% fee .. merchant calls me after he got funded screaming that I'm a loan shark ?? that it was really 40% APR because it was taken out daily. sends me this link
http://www.calculatorsoup.com/calcul...r-advanced.php

any accountants on this forum able to explain if this really works out to be 40% Apr .. i did tell him it wasn't a loan it was buying his receivables but he said the 1st page of contact say " business loan agreement '" ?

As a simple rule of thumb, the APR will be slightly less than the annualized factor multiplied by two.

EG: 1.30 factor over 6 months = 1.60 over 12 months = 110% APR.
1.13 factor over 6 months = 1.26 over 12 months = 45% APR.

Not an exact science, but it's very close. Cool little trick to convert factor to APR.

[bdshaw]

Jfeinberg wins the prize. Zack, if your client has full,use of the mokey for a full year your 16% figure would be correct. However as the loan amortized he gets the use of about 60% over the year.....hence the increased APR. For those willing to look at history I would Google add- on retest rates, a method of stating innacurate interest rates to consumer...the Fed halted that practice.
Bob Shaw
734-929-3800
Rsha w@ironhorsecredit.com

[Comma]

funded a $75k deal recently with rapid on their select/preferred program 16% over 12 month but with the 2.5% up front fee came out to 18% fee .. merchant calls me after he got funded screaming that I'm a loan shark ?? that it was really 40% APR because it was taken out daily. sends me this link
http://www.calculatorsoup.com/calcul...r-advanced.php

any accountants on this forum able to explain if this really works out to be 40% Apr .. i did tell him it wasn't a loan it was buying his receivables but he said the 1st page of contact say " business loan agreement '" ?

Everyone has correctly commented!

I am gonna geek out here with some finance...

The APR for this calculation, assuming that you have 20 repayment days per month, would be approximately 43%. But actually the "APR" will be slightly less because a month has about 30~31 days. But the true calculation is not "APR," it is IRR (Internal Rate of Return) because the advance amortizes the principal as well as pays back the interest.

The mathematical calculation of 43% "APR" is correct. But if the financial product is an advance... you cannot use the term "APR." Furthermore, although the contract header may be entitled "business loan agreement," the underlying terms are more important. If this is an advance, with splits, withholds, etc., you cannot use the terms interest rates, APR, etc.

I have no comment on the legality of the terms... my comments are only for the financial interpretation of the terms. I have a CPA certificate from the Commmonwealth of Virginia and a finance degree from an MBA program...not bragging, just wanted to give some back-up to my comments.

I hope this helps. Please private message me if you have any further questions.

[Cfairbank]

Yearly anniversary of the APR to factor rate discussion?

[Comma]

Hahahahaha..

Carl Fairbank is so right!!!

Let me copy and paste my post for next year!!!!

[Zach]

That is my understanding of how APR works, disclaimer I could be 100% wrong.

You are 100% correct Mark. This is because the interest is applied to the principal balance at different intervals (principal balance x monthly interest rate). Generally speaking, factor rate lenders/funders will apply their interest either daily or weekly. The lower the principal balance is when the interest accrues, the lower total interest will be paid (assuming a static APR).

Because daily payments and weekly payments force the principal down faster, but the factor rate remains the same, the APR is therefore greater. This means there is not only less capital available to the borrower at any given time during the loan, but the APR itself also increases due to having a static factor rate rather than a traditional APR calculation.