With an advance, a provider pays today for a share of card receipts the business has yet to take in. The total to be collected equals the advance times the factor rate, and a holdback percentage of each day's card sales is remitted until that total is reached. The cost is fixed at signing.
At a glance
- Limited-service restaurants, Lawrence County, TN
31 employer establishments (CBP 2023, NAICS 722513)
- Cost stated as
A factor rate, not an annual rate
- Who decides
The provider, never Wrenway Funding
How a merchant cash advance follows card sales at a Lawrenceburg, TN counter business
A merchant cash advance is collected as a share of a business's card receipts rather than in fixed installments: the provider's share comes out of each day's card sales, so busier days send more and lighter days send less.
Of the six products on this site, only the merchant cash advance is collected that way. The other five products are loans or leases with set payment schedules, covered on the business loans page. A counter business with steady card traffic, such as one of the 31 limited-service restaurants with paid employees that Lawrence County, TN counted in 2023 (County Business Patterns, NAICS 722513), is the kind of business an advance is built around.
From card statements to daily remittances: the life of a merchant cash advance at a Lawrence County, TN store
- A provider may review several months of card processing and bank statements to see how much comes in by card.
- Three figures define any offer that follows: how much is advanced, the factor rate, and what share of daily card sales is held back.
- Once the agreement is signed, the provider sends the advance to the business account.
- Each business day, the holdback share of card sales goes to the provider, by a split at the processor or a debit from the account, until the total is collected.
Nothing about the advance has a due date in the usual sense. The pace depends on card sales, which is why the agreement should be read for how the daily amount is set and whether it can be adjusted when sales change.
A 1.27 factor on a Lawrence County, TN quick-service restaurant's advance, turned into dollars
Illustration only, invented figures: a quick-service restaurant faces a $15,350 tax bill and takes an advance of $15,350 priced at a 1.27 factor. The total to be collected is $15,350 times 1.27, or $19,494.50, which makes the cost of the advance $4,144.50.
In this invented example, card sales averaging $2,150 a day at a 9% holdback send $193.50 to the provider on each business day, so about 101 business days pass before the total is collected. If sales run higher, it is reached sooner, but the $4,144.50 cost stays the same: a factor rate is charged once, not by the month.
The calculator on this page takes the same four entries: the advance, the factor rate, the holdback and average daily card sales.
A purchase of future card receipts: what the paperwork of a merchant cash advance says for a Lawrence County, TN store
A merchant cash advance agreement is written as a sale. The provider buys a stated amount of the business's future card receipts for a lower price paid today, and the business agrees to pass along a share of those receipts as they come in. That is why the advance does not carry an interest rate or a term in months.
For a store weighing an advance against payroll, the wording matters in practice. An agreement may include a reconciliation clause that lets the daily amount follow actual sales, may ask for an owner guarantee of performance, and may bar taking a second advance while the first is open. Each of those terms is worth reading before signing.
The holdback percentage at a Lawrenceburg, TN quick-service restaurant counter, one business day at a time
Holdback means the slice of a day's card sales that the provider keeps for itself. Illustration only, invented figures, using the 9% holdback from the restaurant example:
| Day | Card sales | Remitted |
|---|---|---|
| Business day 1 | $1,840 | $165.60 |
| Business day 2 | $2,310 | $207.90 |
| Business day 3 | $1,975 | $177.75 |
| Business day 4 | $2,620 | $235.80 |
| Business day 5 | $3,105 | $279.45 |
| Business day 6 | $1,170 | $105.30 |
| Six days | $13,020 | $1,171.80 |
In this invented example, on the $1,170 day only $105.30 goes out, which is the point of a holdback: the remittance shrinks with the day's card sales. An agreement that sets a fixed daily debit instead works differently, and the owner should know which kind is on offer.
Working out a factor rate backward from an offer's total: a Lawrence County, TN parts store's arithmetic
Some offers lead with the advance and the total to be collected and leave the factor rate unstated. It can be worked out by dividing one by the other.
Illustration only, invented figures: a parts store is offered $9,250 with $11,932.50 to be collected. Dividing $11,932.50 by $9,250 produces 1.29, the factor. The cost is $2,682.50, which is 29% of the advance, charged once.
That percentage is not an annual rate and should not be set beside a loan's annual rate as if it were. To compare an advance with a loan, put both into total dollars over the time each is expected to run. Card-sales funding sits beside the other five types in the uses table on the Lawrenceburg, TN page. The industries page sets a card-sales advance beside a line draw and inventory financing for store stock.
Two blog posts set an advance next to other products: a drive-through advance when card sales dip and a vet clinic's order on a loan, a line draw or an advance.
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