Term loans, working capital loans and credit lines charge interest; equipment can be financed or leased; inventory financing is tied to stock; a merchant cash advance buys future card sales and is not a loan. Partners set every term.
What is a merchant cash advance, and where could it fit a Lincoln County, NC repair shop that takes cards?
A merchant cash advance is a lump sum a funding provider pays now in exchange for a share of the business's future card sales. No interest rate applies and no due date is fixed, which is why it is not a loan. The provider collects an agreed percentage, the holdback, from each day's card receipts until the agreed total has come in.
Illustration only, invented figures: a repair shop takes a $17,500 advance at a 1.26 factor, so $22,050 is to be collected and $4,550 of that is the provider's cost. Card receipts averaging $1,620 a day, with 14% held back, send $226.80 a day to the provider; at that rate the last dollar arrives on business day 98. Lighter card-sales days stretch it; heavier ones shorten it.
A card-heavy repair bay is one of 70 auto repair and maintenance establishments that County Business Patterns counted in Lincoln County, NC for 2023 (NAICS 8111). A shop among them that takes most of its revenue by card is the kind of business this product is shaped around; a fabricator invoicing on net terms is not.
Types of commercial loans laid side by side for Lincolnton, NC metal shops
| Funding type | Cost is stated as | Charged on |
|---|---|---|
| Business term loan | An annual interest rate | The balance still owed |
| Working capital loan | An annual rate, sometimes a fixed fee | The balance, over a short schedule |
| Business line of credit | An annual rate on draws | Drawn dollars only, for each day they stay out |
| Equipment financing | A rate (loan or finance agreement) or a lease payment | The machine price, less any down payment |
| Inventory financing | A rate on the stock advanced | The value of stock financed |
| Merchant cash advance | A factor such as 1.26 | The advance, collected from card sales |
A metal shop comparing offers across rows needs the same yardstick: the total paid over the life of each one, in dollars. A factor and an annual rate cannot be read side by side until both are turned into totals.
Two articles go further: the rates and offers article on what can move an offer, and the equipment paperwork article on what a funding partner may review.
One payout and 72 fixed payments: racking and machines for a Lincolnton, NC fab shop's second leased space
A business term loan is one sum, paid out once, with a fixed number of payments. It fits a project with a clear price and a long useful life, where the owner wants the payment known on day one.
Illustration only, invented figures: a fabrication shop moving part of its work into a second leased space prices pallet racking, a radial arm drill, two tube notchers and a used ironworker at $118,000. Spread over 72 months at 9.85% a year, the shop sends $2,177.13 each month; 72 of those come to $156,753.36, so the project carries $38,753.36 of interest by the final installment. Bolting the racking down and running power to the drill and the ironworker are property work outside this site.
The term loan page prices a second electrical crew and a service van the same way.
An annual insurance premium on a Lincoln County, NC contractor's credit line, cleared in 61 days
With a business line of credit, the partner fixes a ceiling and the business borrows beneath it as bills arrive. Interest runs only on the dollars drawn, and each paydown makes that room usable again.
Illustration only, invented figures: a contractor draws $9,400 to pay an annual insurance premium in one go and clears it 61 days later from job receipts. Priced at 13.25% a year as simple interest, those days of borrowing cost $208.15. A partner's own method (daily balance, minimum charge, any draw fee) can change the figure, so the offer is what counts.
Where title to the machine sits under a Lincolnton, NC fabricator's loan, finance agreement or lease
The contract decides it. An equipment loan is exactly what it sounds like: borrowed money, a machine the shop owns, and that machine pledged against the debt. An equipment finance agreement works much the same way, though it is written as a financing contract rather than a note. A lease is not a loan at all; the lessor owns the equipment and the shop pays for its use.
- Loan or finance agreement: the shop owns the machine from the start and pays it off.
- Lease with a purchase option: the lease sets the option price, and title passes only if the shop uses it.
By Plumbend Lending Group ยท Updated
