A merchant cash advance is not a loan: a funder buys a fixed amount of a business's future receipts and collects it through a holdback or scheduled debits. Brookmont Funding, a small-business funding broker in Terre Haute, Indiana, explains holdbacks, factor rates, reconciliation and stacking to Vigo County owners. Funders alone decide and set all terms.
| What it is | A sale of tomorrow's receipts to a funder; not a loan |
|---|---|
| Collected through | A holdback share of sales, or fixed account debits |
| Price expressed as | A multiplier (factor) on the sum advanced |
| Check first | Total remitted in dollars, reconciliation, stacking clause |
| Who decides | The funder; Brookmont Funding arranges only |
Loan or not? Why an advance is different
No. A merchant cash advance is not a loan. A loan is borrowed money, paid back with interest on a timetable. With an advance, the funder pays you now in exchange for the right to collect a fixed total from your future receipts. There is no interest rate and, in principle, no fixed end date: the advance is finished when the agreed total has been remitted.
That difference explains how the price is stated, how collection works and what happens if sales slow down.
The holdback percentage, explained
The holdback is the slice of each day's card sales or deposits the funder keeps. As arithmetic only: with a holdback of one-eighth, a day with $640 in card sales would send $80 to the funder; a quieter day sends less. Those figures are an illustration, not a typical holdback.
Many advances replace the percentage with a fixed daily or weekly debit from your bank account, estimated from average receipts. A fixed debit does not shrink automatically when sales fall, which is why the reconciliation clause matters.
A merchant cash advance example, step by step
The price of an advance is expressed as a factor, a multiplier applied to the amount advanced. Total remitted = advance × factor. Cost = total remitted − advance.
Purely to show the method, with a factor of 2 chosen because it doubles cleanly: an $800 advance would mean $1,600 remitted and an $800 cost. These numbers are not an offer and not a typical figure. Next, divide the total by your expected daily collection to estimate how many business days the advance would run. A short run time makes the effective cost much higher than the factor suggests.
Credit checks and credit reporting on advances
Practices differ by funder. Some check the owners' personal credit when reviewing an offer, some report to business credit bureaus, and many do not report regular remittances at all. A default, a lawsuit or a collection action can still appear in records a later lender will see. Ask each funder, in writing, whether it checks credit, what it reports and to whom.
Reconciliation, stacking and default
Reconciliation lets you ask the funder to adjust fixed debits so they match the agreed holdback share of actual receipts. Read how to request it, what records you must send and how quickly the funder must respond.
Stacking is taking a second advance while the first is still being collected. Many agreements forbid it, and two sets of daily debits can empty an account quickly.
Default events usually include switching bank accounts to block debits or closing without notice. The remedies are set out in the agreement and can reach an owner who signed a guarantee.
Before signing an advance
- In dollars, what total will be remitted?
- How much reaches your account after any charges are deducted?
- Is collection a percentage of receipts or a fixed debit?
- How do you request reconciliation, and how fast is it applied?
- Does an owner guarantee performance, and how far does that reach?
- Is stacking prohibited?
If a slower, cheaper structure would work, compare working capital financing first. A funder will read your bank statements closely; our bank statement article explains what it looks for. Advances leave a public lien too, covered in the Indiana UCC guide.
Who sometimes considers one
Advances tend to be considered by businesses with steady card or deposit receipts that need money quickly or do not meet a lender's criteria, such as some restaurants and shops. In Vigo County, food services and drinking places alone numbered 248 employer establishments in 2023 (U.S. Census Bureau, County Business Patterns 2023). The industry page and the Terre Haute, IN profile give the wider picture, and how a request works shows where we help. A merchant cash advance is not a loan, and plenty of businesses are better served by something else.
By Brookmont Funding · Updated