Mossdale Lending Group, a small-business funding broker in Pasco, Washington, walks through merchant cash advances. Such an advance is not a loan: a funder buys a share of future card or bank receipts and collects it through remittances. This page covers holdback, reconciliation, factor rates, stacking and default, so you can price an advance in dollars.
| What it is | A sale of upcoming receipts, not borrowing |
|---|---|
| How it is collected | Remittances, often daily or weekly |
| Pricing | Factor times advance equals the purchased amount |
| Holdback | The share of receipts remitted |
| Main risk | Stacking several advances |
| Who decides | The funder |
Selling tomorrow's receipts for cash today
In a merchant cash advance, a funder pays you a sum now in exchange for a larger amount of your future receipts, which makes it something other than a loan. Instead of interest and a repayment schedule, the agreement sets a purchased amount and a holdback, the share of receipts remitted to the funder until the purchased amount is collected.
Holdback share, daily remittance, true-up
Many advances collect a fixed amount each business day from your bank account, set to approximate the holdback share of expected sales. If sales drop, a reconciliation clause may let you ask the funder to adjust remittances to the true share. Read how reconciliation is requested, what records are needed and how quickly the funder must respond.
Some agreements split receipts at the card processor instead. Either way, remittances continue until the purchased amount is collected, which means the time it takes depends on your sales.
Factor rates in dollars
Advances are priced with a factor rate: the advance times the factor equals the purchased amount. A hypothetical example, not an offer: an advance of $1,000 at a factor of 1.5 means $1,500 is collected, a cost of $500. Because collection speed depends on sales, the cost per month can be much higher than the factor suggests if receipts come in quickly.
Compare an advance with loan-type options on total dollars paid back and on how much each remittance takes from a typical week's deposits. The working capital page explains a fixed-schedule alternative.
Stacking, and why it causes trouble
Stacking happens when a second funder starts collecting before the first one has finished. Each funder takes its own remittance from the same deposits, so the combined holdback can quickly exceed what the business can spare. Many agreements prohibit stacking, and breaking that clause can count as a default.
If an offer arrives to pay off one advance with a larger one, add up both totals before agreeing. A refinance that resets the collection clock can cost more than finishing the first advance.
Default and the clauses to read first
- What counts as a default, such as changing bank accounts or blocking remittances.
- Any personal-guarantee clause, and what it covers.
- Whether the agreement includes a confession of judgment or similar clause.
- Fees for returned remittances or for reconciliation.
A side-by-side check before you sign
| Question | Where to find it | Why it matters |
|---|---|---|
| Purchased amount | The purchase price or specified amount | This is the total that will be collected |
| Holdback or fixed remittance | The remittance section | Sets how much leaves each deposit |
| Reconciliation | A clause on adjusting remittances | Protects you if sales fall |
| Fees | The fee schedule | Adds to the cost beyond the factor |
| Stacking and default | Covenants and default sections | Explains what triggers collection actions |
If any row is blank after reading the agreement, ask the funder in writing before signing.
Who in Franklin County, WA asks about advances
Accommodation and food services had 173 employer establishments in Franklin County in 2023, and retail trade had 228 (U.S. Census Bureau, County Business Patterns 2023). Both sectors take much of their revenue by card, which is the setup an advance is designed around. A restaurant with steady card sales and a broken cooler compressor is the textbook case; a restaurant with falling sales and an overdue supplier is not, because remittances would take a share of revenue it already cannot spare.
The narrow case where an advance fits
An advance can suit a business whose sales settle mostly by card or deposit and whose need is short and specific, such as a repair that has to happen now. It suits ongoing shortfalls poorly, because remittances keep taking a share of sales that the business already needs. The industries page notes which sectors tend to weigh advances; restaurants and retailers ask most often.
For the local employer picture, see Census figures for the county. For how a request moves from a call to a funder's answer, see the four steps.
By Mossdale Lending Group · Updated