Sandpark Lenders passes the request to independent providers, who set the amount, the factor and the holdback.
A business gets cash today and gives up a set total out of later card sales. The invented cases work a quick-service restaurant's large order, a repair shop's holdback week, three factors, an advance next to a line of credit, a pizza shop's steps and the time value of one factor.
At a glance
- What it is
a purchase of future card sales, not a loan
- Collected by
a holdback on daily card receipts or a set daily bank withdrawal
- Cost set by
the factor in the provider's agreement
Paying for a large order from future card sales at a Bowling Green, OH quick-service restaurant
County Business Patterns put 115 employer establishments under limited-service restaurants (NAICS 722513) in Wood County, OH for 2023. For one that takes payment by card at the counter, that card stream is what a merchant cash advance is built on.
Illustration only, invented figures: a restaurant takes a catering order for a company event and needs $11,500 for food, packaging and extra hours before the client pays. With $11,500 advanced at a 1.32 factor, the provider's collections stop once $15,180.00 has come in. With a 9% holdback on average card sales of $1,950 a day, about $175.50 comes out each business day, and the total is collected in about 87 business days by our arithmetic.
The advance is a purchase of those future sales at a discount, which is why its agreement speaks of a factor and a holdback rather than an interest rate and a term.
The holdback percentage on a week of card receipts at a Bowling Green, OH auto repair shop
Think of the holdback as the provider's cut of every card batch, taken day after day until the agreed total is in. It can be taken through the card processor before the deposit lands, or by a bank withdrawal. In an invented week at a repair shop with an 8% holdback:
| Day | Card sales | Collected by the provider |
|---|---|---|
| Monday | $1,720 | $137.60 |
| Tuesday | $2,240 | $179.20 |
| Wednesday | $1,580 | $126.40 |
| Thursday | $2,610 | $208.80 |
| Friday | $1,990 | $159.20 |
The week sends $811.20 to the provider, and each day's share follows that day's sales. Ask whether the agreement uses a true percentage like this or a set daily amount, because the two behave differently in the cash account.
Working out what a factor costs: three offers on one invented $8,000 advance for a Wood County, OH therapy office
The factor is a multiplier on the advance. Advance times factor gives the amount the provider will collect, and that amount minus the advance is what the money costs. A therapy office that takes copays and self-pay visits by card might see three offers like these (invented):
| Factor | Total to be collected | Cost of the advance |
|---|---|---|
| 1.19 | $9,520.00 | $1,520.00 |
| 1.28 | $10,240.00 | $2,240.00 |
| 1.37 | $10,960.00 | $2,960.00 |
Each step of 0.09 in the factor adds $720.00 here. The holdback does not change the cost, only how long collection takes. The calculator on this page does this multiplication and also estimates the number of business days.
A cash advance next to a line of credit for a Bowling Green, OH sit-down restaurant's smallwares order
Suppose a restaurant needs $7,000 for glassware, linens and smallwares (invented figures). As an advance at a 1.25 factor, $8,750.00 is collected; at a 10% holdback on $1,400 of daily card sales, that is $140.00 a day for about 63 business days, and the advance costs $1,750.00.
If the restaurant already had an open line of credit, the same $7,000 drawn at an annual rate of 12.55% and cleared over the same stretch, about 89 calendar days, would cost about $214.21 in interest if the whole draw stayed out until the end (our arithmetic). The line costs less here; the advance is a different tool, built on card sales rather than an approved limit. Business lines of credit have their own page.
From offer to last remittance: how a merchant cash advance works for a Bowling Green, OH pizza shop
- The shop calls or sends the request form and talks through what the money is for.
- The pizza shop's card processing statements and bank statements go to a provider, which may also run a credit check.
- Any offer states the advance, the factor, the total to be collected, the holdback or daily amount and any fees.
- The shop signs the agreement, and the advance is deposited.
- Each business day, the holdback or a set withdrawal goes to the provider until the total is collected.
If the agreement uses a set daily withdrawal instead of a holdback, the amount does not change with sales: an invented $165.00 comes out of the bank account each business day, on a slow day and a busy one alike.
Factor and annual rate measure different things: one 1.22 factor collected in 70 or 140 business days
A factor fixes the dollar cost; it does not say how long the money is out. A coffee shop takes a $6,400 advance at a 1.22 factor, a cost of $1,408.00 (invented). If its card sales clear the total in 70 business days, that cost covers about 14 weeks of use, roughly $100.57 a week. If collection takes 140 business days, the same $1,408.00 covers about 28 weeks, roughly $50.29 a week.
The shorter the collection period, the more the same factor costs per week of use, so compare offers on the factor and on the likely number of business days together.
Three articles take the advance further: what a Bowling Green, OH restaurant checks before signing one, how it fits a business paid by claims or commissions, and a small suite advance in the pedicure chairs and stations article.
By Sandpark Lenders · Updated
