Heathfield Commercial Capital hands the request on, and providers decide whether to make an offer.
With a merchant cash advance, a provider pays now for a slice of card sales the business has yet to make. The provider pays a lump sum, the factor rate sets the total to be collected, and the holdback sets the share of each day's card sales that goes toward it. Slower sales stretch the time; they do not change the total.
At a glance
- What it is
A purchase of future card sales, collected as a share of each day's card batch
- What sets the cost
The factor rate, applied once to the advance
- Who it fits
Businesses with steady card sales and a short-term need
A Jackson, WY Garden Shop's Plant Stock Advance at Two Holdback Shares
A merchant cash advance on this site is collected from card sales: the provider keeps an agreed share of each day's card batch until the agreed total has come in. That share, the holdback, sets the pace of collection, not the total.
Illustration only, invented figures: a Jackson, WY garden shop takes $16,000 to buy plant stock and nursery supplies, with a factor of 1.24, so $19,840 is to be collected at either holdback share.
| 10% holdback | 12% holdback | |
|---|---|---|
| Rate of collection | 10% of card sales | 12% of card sales |
| Sales assumed | $2,480 of card sales a day | $2,480 of card sales a day |
| Each collection | $248 a day | $297.60 a day |
| Time to reach the total | 80 days of card sales | 66 days of $297.60, then $198.40 on day 67 |
The invented total is the same; the pace is not. The 12% share clears the advance 13 business days sooner but takes $49.60 more out of every day's card sales, and at either share a day with weaker card sales sends less.
How Does a Merchant Cash Advance Work at a Teton County, WY Lodge Front Desk?
A lodge that takes most guest payments by card at the front desk has card batches an advance can be based on. The provider pays a lump sum, then takes a fixed share of each day's card settlements until the agreed total has been collected.
- The provider may ask for recent months of card processing statements and bank deposit records.
- Any offer names the advance, the factor rate, the holdback share and the total to be collected.
- Once the agreement is signed, the advance lands in the lodge's business account.
- From then on, every card settlement is split: the holdback slice heads to the provider, the remainder to the lodge, and the split stops once the agreed total is in.
Illustration only, invented figures: a Teton County, WY lodge takes $22,500 with a 1.27 factor, so $28,575 is to be collected. With a 9% holdback and front-desk card sales averaging $3,150 a day, $283.50 goes to the provider each day, and the total is reached in about 101 days of card sales. The calculator on this page takes these four inputs and shows the total, the cost and the time.
For scale, the accommodation and food services sector employed 4,560 people at establishments with paid staff in Teton County, WY in 2023 (County Business Patterns, NAICS 72).
What Is a Factor Rate in an MCA? A Multiplier on the Advance, Not an Annual Rate
A factor rate is a single multiplier written as a decimal, such as 1.18 or 1.35. Advance times factor gives the whole sum the provider is entitled to collect. Whatever the provider collects beyond the advance is the price of the money. That price is set once, when the agreement is signed, and does not grow with time.
That is the main way a factor rate differs from an annual interest rate. In the lodge example, the $6,075 cost stays the same whether the $28,575 comes in over 101 days or over twice as long. Because the cost is fixed, a shorter collection makes the advance more expensive per year, and a slower one makes it cheaper per year; the factor itself says nothing about time.
That is also why a factor rate cannot be compared directly with the rate on a term loan or a line of credit. To weigh them, compare the total cost of each over the time it would really take to clear.
What Kind of Agreement Is a Merchant Cash Advance? A Purchase of Future Card Sales
A merchant cash advance is a sale. The business sells a set amount of its future card receivables to the provider at a discount and receives the price as a lump sum. That makes it not a loan: there is no interest rate, no principal, and no fixed term.
The agreement may spell out several parts, and each is worth reading before signing:
- The purchase price: the advance paid to the business.
- The purchased amount: the total the provider will collect.
- The holdback: what percentage of every card batch the provider keeps.
- Reconciliation: whether collections can be adjusted when card sales fall.
- What counts as a breach, such as moving card processing elsewhere.
Teton County, WY design and engineering firms that collect most of their fees by invoice may have little card volume for an advance to draw on; a working capital loan or a line of credit can be compared on the product comparison page.
What Is a Holdback Rate? A Week of Card Batches at a Jackson, WY Gallery
Think of the holdback rate as the provider's cut of every card batch, set as a fixed percentage in the agreement. An agreement might name 8% or 15%; that share is what makes collection move with sales: a strong day sends more, a slow day sends less.
Illustration only, invented figures: a Jackson, WY gallery has a 12% holdback. Over one week its card sales total $18,405, and the provider collects $2,208.60.
| Day | Card sales | Collected (12%) |
|---|---|---|
| Monday | $1,840 | $220.80 |
| Tuesday | $2,615 | $313.80 |
| Wednesday | $1,190 | $142.80 |
| Thursday | $3,320 | $398.40 |
| Friday | $2,475 | $297 |
| Saturday | $4,060 | $487.20 |
| Sunday | $2,905 | $348.60 |
| Week | $18,405 | $2,208.60 |
Wednesday, the smallest day in the table, sends the least, and Saturday sends the most. Nothing in the holdback changes the total to be collected; it changes only how many days it takes to get there.
How to Calculate a Factor Rate From the Figures on an Advance Offer
An offer may not print the factor rate in large type. It can be worked out from two figures an offer lists: the advance and the total to be collected.
Illustration only, invented figures: an offer pays $40,000 and lists $53,200 to be collected. Divide the second by the first: 53,200 / 40,000 = 1.33. So the offer carries a 1.33 factor, and the advance costs $13,200: 33 cents on each dollar paid out.
- Find the advance (the amount paid to the business).
- Locate the collection total, which some offers label the purchased amount.
- The collection total divided by the advance gives the factor rate.
- Take the advance away from the collection total, and what is left is the dollar cost.
With the holdback and the average daily card sales, the same offer can also be turned into a likely collection time, which is what the calculator on this page does. An advance request can also be opened on the request page; card-sales figures come up on the call. ZIP 83001 and Teton County, WY employer counts stand side by side on the Jackson, WY page. The industries page sets a restaurant's card-sales advance next to a law office's payroll options.
By Heathfield Commercial Capital · Updated
