Can An MCA Calculator Estimate Repayment Duration?

Now, let’s take a look at what could be one of the more complicated aspects of Merchant Cash Advances, which is estimating when it’s all over. It’s not like when you take out a loan and make 36 tidy payments and then throw a party when it’s all done. Instead, you’re dealing with what amounts to a gray area, and you could be curious about what those nifty Merchant Cash Advance calculators on the web can actually do for you.

Short answer: kind of. Long answer: that’s where the fun begins.

The MCA Repayment Puzzle

What makes the payment term tricky is that it rides around on your business credit card sales. When business is booming and many transactions occur through your point of sale system, you can pay it off quicker. During slow seasons and holidays, you can bet payments will be slow too.

It’s like asking how long it will take to get to the beach by car. It depends on the traffic, the weather, coffee breaks, and whether your GPS device will route the trip through road work. An MCA calculator will give an estimate based on some hypotheses, but the real-world scenario never plays out that way.

What do the MCA Calculators Do?

Typically, most Multiple-Choice Calculator formulas require just a few pieces of basic information, including the amount of the advance, the factor rate (or total repayment rate), and the average monthly and daily Visa card sales.

For instance, on a 1.3 factor rate for a $20,000 advance, this means that the amount to be repaid is $26,000. With a daily sales level of $2,000, taking 15% daily, this translates to a repayment cost of $300 per day. Basic mathematics here indicates that the payback period takes about 87 days.

Sounds easy, right? And here comes the part of the plan where the world gets in the way

Variables Calculators Can't Predict 

Your business is no metronome ticking off sales rhythmically every day. It’s impossible to predict real-world oscillations.

Variations between seasons are tough to handle. Difference between a beach shop in July and January. Apples and oranges. Difference between tax preparation help in April and August. Entirely different worlds. Variations between seasons make a huge impact on payment periods.

Economic surprises bring curveballs. A competitor moving in next door. Viral buzz that triggers a flood of customers. A kink in the supply chain that impacts inventory. A festival you didn’t know was happening. It all has an impact on daily sales and, by extension, payment speed.

Change or growth means that everything is turned upside down. You could make a killer market launch in the middle of your repayment cycle and double your sales. Or you could lose your biggest client. "Calculators assume constant average sales," but "businesses are dynamic entities and change."

The Holdback Hiccup

Another twist is that not all MCA lenders deduct a fixed percent per day. They may be pegged to your sale amount or may have a minimum amount of deduct per day. They may take a larger chunk if it means meeting their minimum amount quickly.

The calculators generally involve a constant percentage, but the real-world situation is more complex.

So What's an MCA Calculator Actually Good For?

Do not get rid of yours. They do not have foresight of absolute clarity in terms of future predictions, but they are good estimates of ballpark values.

Best-Case Scenarios: Estimate how quickly you can pay off the advance by looking at sales during peak seasons.

Worst-case scenarios: Run the numbers using the numbers from your worst months to determine the longest payoff, which will help you budget for reimbursement.

Average expectations: Use your actual average monthly sales, because there will be some months when you will be faster or slower.

A smarter way

Use your MCA calculators like weather forecasts, not predictions. A "partly cloudy with a chance of rain" type of weather forecast helps you determine if you need to carry your umbrella, but it certainly doesn't mean you'll be able to avoid getting wet.

Use calculators to:

• Compare the various MCA deals side by side 
• Cash flow stress test scenarios 
• Manage team expectations
• Taking into account different business conditions 

But don't interpret the results too literally. You have to factor a buffer for the unexpected, since in business, no matter what planning or preparation, surprises will assuredly come. 

The Bottom Line

Will an MCA calculator provide an estimate of the term of the loan? Yes, at least with a major qualification. It’s an educated estimate based on certain assumptions that will inevitably be invalidated by real-world factors. Use calculators as a planning tool, not a crystal ball. The best forecasting tool you have for repaying your MCA is not a calculator, but understanding your rhythms of business. Because, if the business world were completely predictable, then finance would basically be unnecessary.