An advance is bought with a share of future card sales. The factor rate sets the total, the holdback sets the daily share, and card volume decides how long collection runs.
At a glance
- Collected from
A share of daily card sales
- Cost set by
The factor rate on the advance
- Length set by
Holdback and card volume
How daily card sales set the length of a merchant cash advance at a Mandan, ND tavern
The amount the funder will collect is locked in on the day the contract is signed. What moves is the calendar: the funder collects its holdback share of each day's card sales, so strong days finish it sooner and lighter days stretch it out.
Illustration only, invented figures: a Mandan, ND tavern takes a $23,740 advance with 1.318 as the factor rate, so $31,289.32 is to be remitted. The holdback in this invented case is 9.25% of each day's card sales. On $2,417 of daily card sales, that is $223.57 a day and about 140 business days in this invented case.
If the invented daily card sales were $1,950 instead, the holdback would collect $180.38 a day and the same total would take about 174 business days. The invented cost does not change; only the length does.
What is a factor rate in an MCA? A frozen beverage machine for a Morton County, ND convenience store
A factor rate is a multiplier set once, at signing. The advance times the factor rate is the total the funder will collect, and that total stays the same whether collection takes four months or ten.
Illustration only, invented figures: a Morton County, ND convenience store takes $7,236 for a frozen beverage machine with a 1.274 factor. The invented total to be remitted is $9,218.66, and the cost of the advance is $1,982.66.
Finishing early may not lower the cost. If an early-completion discount exists, it would be written in the contract; ask to see that clause.
What is a holdback rate? A Mandan, ND liquor store's card receipts
The holdback is the percentage of each day's card sales the funder keeps until the total is remitted. It is set in the contract and applied to whatever the card processor settles that day.
Illustration only, invented figures: with the holdback set at 11.75%, a Mandan, ND liquor store with $1,483 of card receipts on a weekday sends $174.25 that invented day. On a Saturday with $2,206 of receipts in this invented case, the same holdback sends $259.21.
Some funders debit a fixed amount from the bank account each business day instead of a percentage. Ask how that fixed amount is changed if card sales fall, and what records the funder wants to see before it changes it.
Card-taking employers in Morton County, ND: retail counters and gas station stores
In 2023, 32.0% of retail trade employer establishments in Morton County, ND had fewer than five employees, so most of the county's stores ran with a staff of five or more (County Business Patterns, NAICS 44-45). Gasoline stations with convenience stores numbered 15 in the county that year (NAICS 447110).
Businesses like these ring up card sales every day, so a holdback has daily receipts to draw on. A company paid mostly by invoice or check gives a holdback little to work with, and a term loan or line of credit may fit it better; the business loan options cover those.
Comparing two factor rates on an invented $11,463 advance for a Morton County, ND bar
| Offer | Factor rate | Total to be remitted | Cost of the advance |
|---|---|---|---|
| Offer A | 1.283 | $14,707.03 | $3,244.03 |
| Offer B | 1.347 | $15,440.66 | $3,977.66 |
Illustration only, invented figures: on $11,463, the gap between the two invented factor rates is $733.63. Compare the holdback in each offer too: a lower factor rate with a higher holdback takes a bigger bite of each day's sales.
Merchant cash advance vs a line of credit for a Mandan, ND tavern's beer and spirits invoice
Illustration only, invented figures: a $16,415 distributor invoice covered by an advance with 1.296 as the invented factor rate costs $4,858.84, for $21,273.84 remitted. The same invented amount drawn on a line of credit at 13.57% and paid down in four equal monthly steps costs $464.07 in interest.
The line costs less in this invented case, but it needs a credit review and a limit already in place before the invoice arrives. An owner may still choose the advance because it is collected from card sales rather than on a fixed monthly schedule.
By Thistlepine Capital ยท Updated