Net Advance Amount
Net Advance Amount refers to the remaining sum of money wired to a merchant after deducting certain expenses from the gross funding amount. The calculation involves subtracting closing costs, refi withholding, and external payoff from the advance amount, as defined below.
What is a net advance amount?
The advance amount represents the total funding provided to the merchant by a financial institution or lender. This funding is typically extended as an advance against future revenues or receivables. However, we make certain deductions to cover various costs and obligations before the merchant receives the full advance amount.
An Explanation of Costs That Are Subtracted From The Advance Amount
During the closing of a financial transaction, individuals incur expenses known as closing costs. These costs include fees for legal services, document preparation, and background check services. To calculate the net advance amount, subtract these closing costs from the initial advance total.
Refi withholding refers to the amount withheld from the advance to cover any outstanding obligations or debts related to the merchant’s previous financing arrangements. It is a precautionary measure taken by the lender to ensure that previous loans or advances are settled before providing additional funds. The refi withholding amount is deducted from the advance to determine the net advance amount.
Before the merchant receives the advance funds, they must pay off any outstanding debts or obligations to external parties. We refer to this process as the external payoff. This could include payments to other lenders, suppliers, or creditors. Similar to refi withholding, we subtract the external payoff from the advance to calculate the net advance amount.
Deducting these expenses from the advance amount determines the net advance amount. The net advance amount is the actual sum that the merchant will receive and can utilize for their business operations or other financial needs.
Understanding Net Advance Amount
It is important for merchants to have a clear understanding of the net advance amount, as it directly impacts their available capital and financial planning. Knowing the amount helps merchants accurately assess the funds they will have at their disposal and make informed decisions regarding their business strategies and expenses. Lenders and financial institutions provide merchants with the net advance amount to ensure transparency and enable effective financial management.