A merchant cash advance is a purchase of future receivables, not a loan: a funder pays a lump sum now and collects a fixed total from your sales. Canyonwick Finance, a small-business funding broker in New Braunfels, TX, explains holdbacks, factor rates and reconciliation, and looks at loan options first. Funders decide and set all terms.
| What it is | A purchase of future receivables, not a loan |
|---|---|
| Collection | A slice of each day's sales, or a set daily or weekly debit |
| Pricing | Advance times factor rate equals total collected |
| Watch for | Stacking, default clauses and missing reconciliation |
| Decision | The funder; Canyonwick Finance arranges |
Why an advance is not a loan
A merchant cash advance is not a loan. With a loan, you borrow money and repay it with interest on a schedule. With an advance, the funder buys a share of receipts you have not earned yet, and it collects that share as your sales come in. The contract, the pricing and the remedies are built on that purchase, not on borrowing.
Holdback and remittance
The holdback is the share of daily card sales or bank deposits that goes to the funder until the purchased amount has been collected. Some contracts take the holdback directly from card settlements. Others replace it with a fixed daily or weekly debit from your bank account, estimated from your average sales. Payments to the funder are usually called remittances.
Check which method the contract uses, which account the funder draws from, and what happens on days when sales are low or the balance is thin.
Pricing by factor rate
Funders price an advance with a factor rate: a multiplier on the sum they hand over. The advance times the factor rate equals the total the funder will collect. The difference between that total and the advance is your cost. Ask for both figures in writing.
The factor rate is silent on how long collection takes. The same total cost collected over a few months is far more expensive in annual terms than the same cost collected over a year. When comparing an advance with a loan, put the total cost and the expected collection period side by side.
A worked example in symbols
Take an advance amount A and a factor rate F. The funder collects A times F. If the holdback is H percent of daily card sales and those sales average D dollars, the funder collects about H percent of D each day, so collection takes roughly (A times F) divided by (H percent of D) business days. Slower sales stretch that period; faster sales shorten it. Plug in the figures from an actual offer to see your own total and timeline.
Reconciliation and stacking
Hunt through the contract for a reconciliation clause before you sign. If you pay a fixed daily amount and sales fall, you can ask the funder to adjust the debit to match the agreed holdback percentage. Note how to ask for it, how often you can, and which records the funder wants.
Stacking means signing a second advance while the first is still being collected. Two holdbacks against the same sales can take a large share of each day's revenue, and many contracts treat stacking as a breach.
Who sometimes considers an advance
Businesses with steady card or deposit volume and a short, specific need sometimes consider an advance, particularly when a loan has been declined or would take too long. Restaurants are a familiar example: Comal County had 474 accommodation and food services employer establishments in 2023, and only 23.0 percent had fewer than five employees, so many carry sizable crews and daily card volume (U.S. Census Bureau, County Business Patterns 2023).
We look at working capital financing and other loan options first and discuss an advance only when those do not fit. The sector pages cover cash patterns by trade, and the local business profile has area counts.
Before you sign anything
- Note the advance, the factor rate and the full amount the funder will collect.
- Note the holdback percentage or the fixed debit amount and its frequency.
- Find the reconciliation clause and how to use it.
- Read the default and stacking sections.
- List every fee taken from the advance at funding.
How a request works shows where Canyonwick Finance fits.
By Canyonwick Finance · Updated