Wheatpeak Lenders, a small-business funding broker in Lewiston, Idaho, explains merchant cash advances and places them with funding partners. A merchant cash advance is not a loan: the funder buys part of your future card or bank receipts and collects them through remittances until an agreed total is reached. Partners decide and set every term.
| What it is | A buy of future receipts; not a loan |
|---|---|
| How it is collected | A holdback percentage of receipts, or fixed remittances |
| Price expressed as | The advance, times the agreed factor |
| Partners review | Card and bank receipt history |
| Who decides | The funding partner |
The advance in one paragraph
Start with the basic point: a merchant cash advance (MCA) is not a loan. A funder pays you a sum now in exchange for a larger amount of your future card or bank receipts. The funder then collects that amount through remittances, usually daily or weekly, until the agreed total has been delivered. Because it is a purchase of receivables, the agreement uses words like purchase price, purchased amount and remittance rather than principal and interest.
The holdback percentage
The holdback (sometimes called the holdback rate or specified percentage) is the share of each day's receipts the funder collects. If sales are strong, more is remitted each day and the total is delivered sooner; if they are weak, less is remitted. Some agreements instead set a fixed daily or weekly remittance that is supposed to approximate the holdback.
The factor rate and the total you hand over
The price is usually written as a factor rate, a multiplier applied to the amount advanced. Multiply the advance by the factor and you have the purchased amount: the total you will remit. Subtract the advance and you have the cost. Because the timing depends on sales, the factor rate is not an annual rate and cannot be compared with a loan's APR without extra work.
Hypothetical illustration, not an offer. An advance of $18,750 at a factor of 1.3 means a purchased amount of $24,375, so the cost is $5,625 however fast it is collected. The faster the remittances, the higher that cost is when expressed per year.
Reconciliation when sales drop
Many agreements include a reconciliation clause: if receipts fall, you can ask the funder to adjust fixed remittances to match the actual holdback share. Find that clause before signing, read what records you must send, and note how quickly the funder must respond.
Stacking and default
Stacking is signing a new advance before the old one has been fully collected. Each funder collects its own share, and the combined daily draw on receipts can outrun what the business takes in. Most agreements prohibit or restrict it. Breaching the agreement, for example by switching the account receipts go into, can trigger default provisions; read them closely.
Questions to ask before accepting an advance
- What is the purchased amount, in dollars, and what is the advance after any fees?
- Is collection a true percentage of receipts, or a fixed daily or weekly sum?
- How do I request reconciliation, and how quickly must the funder respond?
- What counts as a default, and what remedies does the agreement give the funder?
- Can I deliver the purchased amount early, and is there any discount for doing so?
If an answer is not in the written agreement, it is not part of the deal. Get it added in writing.
Is a merchant cash advance legit, and is it debt?
Merchant cash advances are a lawful, widely used product, but terms vary a great deal from funder to funder. Treat any offer as you would a large contract: read every page, total the remittances, and ask what happens if sales fall. On a balance sheet an MCA is often discussed as a liability even though it is not a loan; ask your accountant how to record it.
If your revenue arrives mostly by invoice rather than card, working capital financing with a fixed schedule is often easier to compare. Our process page shows how we set offers side by side; the sector pages explain which businesses tend to consider an advance; and county data and next steps gives the local context.
By Wheatpeak Lenders · Updated