So what is the corresponding APR on these loans?

Well, the cheapest merchant cash advance loans cost the merchant 1.12 ($10,000 costs $11,200) if paid back evenly over 6 months, the equivalent APR which is the ANNUAL PERCENTAGE RATE is 48% APR.

The much more popular Merchant Cash Advances usually cost at least 1.35 ($10,000 costs at least $13,500) the corresponding APR would be about 142%+, if structured with an APR!!!

Confusing right?

Yes it is. and supposed to be confusing for the merchant so that they do not realise just how much they are paying back for thier short term cash advance.

I will try to explain, with a normal bank loan or credit card where the Annual Percentage Rate is for example 12%, that 12% is charged over 1 full year on the money actually outstanding/owed during that year.

So if you were to keep the full balance, and then pay back the loan in full at month 6, you would of paid a 6% (of the entire amount originally borrowed) cost for that money.

If you pay back all or a portion of the money owed, you are paying the 12% spread over the entire year, and only 12% on the amount actually owed. the less owed at any time, the less you are paying 12% on, you are not paying 12% of the amount that you may of owed the day you took out the loan.

A $10,000 bank loan at 12% APR would only cost you $1,200 if you did not pay back anything the entire year, it would only cost you a full 12% fee of $1,200 per year, if and when you continuously owed the full amount of $10,000 the entire year. because the 12% APR fee is charged on the BALANCE AMOUNT OWED not on the amount written on the original loan check.

With Merchant Cash Advance however, the Fee of 12% to 45% charged over 6 months is charged as a fee, as if you owed the entire amount without paying anything back the entire term of the loan. and it is usually paid back over 6 to 9 months not a (annual) year.

When you compare the fees charged on Merchant Cash Advances to what you would pay on a real 12% to 45% APR loan which was paid back evenly over 6 months, you end up with a much larger 48% APR to 142%+ APR bank loan equivalent.

You then have all the additional charges such as Closing Costs, Leases & Processing Fees all stacked together often helping a desperate or unhealthy business fail.