A merchant cash advance company buys part of a business's future card sales for a lump sum now, then collects a fixed share of each day's card sales, the holdback, until a set total is reached. For a Crossville, TN restaurant or gas station store, the daily amount rises and falls with card sales while the factor fixes the total. The advance is not a loan.
Invented restaurant advance: $16,500 at a 1.33 factor sets $21,945.00 to be collected, an invented cost of $5,445.00. An 11% holdback took $6,616.50 over six invented weeks. Lower card sales stretch the collection days but leave the total unchanged, and a 9-month working capital loan on the same amount carries $1,009.32 of invented interest.
How the holdback follows card sales
Invented advance, all numbers invented: a Crossville, TN sit-down restaurant takes $16,500 for beverage and bar stock ahead of a large banquet booking, at a 1.33 factor and an 11% holdback.
| Week | Card sales | Holdback collected | Collected so far | Still to collect |
|---|---|---|---|---|
| 1 | $11,240 | $1,236.40 | $1,236.40 | $20,708.60 |
| 2 | $9,380 | $1,031.80 | $2,268.20 | $19,676.80 |
| 3 | $12,760 | $1,403.60 | $3,671.80 | $18,273.20 |
| 4 | $7,310 | $804.10 | $4,475.90 | $17,469.10 |
| 5 | $10,590 | $1,164.90 | $5,640.80 | $16,304.20 |
| 6 | $8,870 | $975.70 | $6,616.50 | $15,328.50 |
Week 4 has the smallest invented card sales of the six, so its holdback, $804.10, is the smallest. Under a true percentage holdback nothing extra is owed for that week; the total simply takes longer to reach.
What the factor rate sets: the total amount collected
The factor multiplies the advance to fix the total: $16,500 at a 1.33 factor means $21,945.00 to be collected in this invented case, at whatever pace card sales set. The invented cost of the money is $5,445.00.
After six invented weeks the holdback has collected $6,616.50, 30.2% of the total. At that six-week average of $1,102.75 a week, the remaining invented $15,328.50 takes about 14 more weeks, rounded up.
Because the total is fixed, finishing sooner does not shrink the cost the way an early loan payoff can cut interest. Whether an agreement offers any discount for early completion is written in its terms.
Weeks with fewer card sales while an advance is open
Invented second case: a Crossville, TN gas station store takes a $9,800 advance at a 1.26 factor, $12,348.00 to be collected, with a 10% holdback on inside-store card sales.
At invented card sales of $2,640 a day, the holdback is $264.00 a day and the total is reached in 47 days, rounded up. If those invented sales sit at $1,980 a day instead, the holdback falls to $198.00 and collection runs 63 days.
The smaller daily amount eases the pull on each day's deposits, while the invented total stays $12,348.00; only the number of days changes. An agreement may instead collect a fixed daily or weekly amount, with a reconciliation step when sales fall, and the offer states which method applies.
Cumberland County, TN counted 40 full-service restaurants and 49 gasoline stations among its employer establishments in 2023 (County Business Patterns, NAICS 722511 and 4471).
Pricing an advance next to working capital and a credit line
Invented comparison for the restaurant's $16,500: a 9-month working capital loan at a 14.45% annual rate runs $1,945.48 a month, $17,509.32 in all. Its invented interest of $1,009.32 is $4,435.68 less than the advance's invented $5,445.00 cost.
A line of credit charges interest only while a draw is out, so its cost depends on how soon sales pay the draw down. An advance may still be the option on the table when a loan or line is not offered; comparing the dollar cost of each shows what that choice costs.
Points to settle with any merchant cash advance company before signing:
- The total to be collected, in dollars, not only the factor
- Whether the holdback is a share of each day's card sales or a set amount taken daily or weekly
- How a week of lower card sales is handled, and whether a reconciliation has to be asked for
- Whether finishing early changes the total in any way
- Whether the agreement limits taking a second advance while the first is open
The merchant cash advance page explains the product in full, and more worked cases are on the blog.
By Crownreach Lending · Updated
