How MCA Repayment Works
A merchant cash advance (MCA) is not a loan. It is a purchase of your future sales at a discount. The MCA MCA provider directory gives you a lump sum today, and in return, they collect a portion of your daily or weekly revenue until the full amount is paid back. Your payments rise and fall with your actual sales — a sharp contrast to traditional loans where you owe the same fixed amount every month regardless of how business is going.
How Do Factor Rates Determine What You Owe?
Traditional loans use interest rates. MCAs use factor rates. A understanding factor rates is a simple multiplier applied to the amount you receive.
Here is the math. Say you take a $50,000 advance with a factor rate of 1.30. Multiply the advance by the factor rate:
$50,000 x 1.30 = $65,000 total payback
That $15,000 difference is the true cost of an MCA of the advance. Unlike interest on a loan, this amount is fixed from day one. It does not compound over time, and paying faster does not reduce what you owe — you always pay back $65,000 whether it takes four months or eight months.
Factor rates for MCAs typically range from 1.15 to 1.50, depending on the provider’s risk assessment, your industry, and your sales history.
How Are MCA Payments Collected Through the Holdback?
The holdback percentage is the share of your daily or weekly revenue that goes toward repaying the advance. Most MCA providers set this between 10% and 20% of daily credit card and debit card sales.
With a bank loan, you pay $2,100 on the first of every month no matter what. With an MCA, your payment adjusts to your actual revenue.
Example: Your holdback percentage is 12%, and today your business processes $2,000 in card sales.
$2,000 x 0.12 = $240 payment today
Tomorrow, if sales drop to $1,200:
$1,200 x 0.12 = $144 payment tomorrow
This is the core mechanic. The holdback percentage stays constant, but the dollar amount collected changes every day based on real sales volume.
Should You Choose Daily or Weekly Holdback?
MCA providers typically collect repayment in one of two ways:
Daily holdback (split withholding): The payment processor automatically diverts a percentage of each day’s card sales to the MCA provider before depositing the rest into your account. You never handle the payment manually — it happens at the processor level. This is the most common method.
Weekly ACH debits: Some providers withdraw a fixed or variable amount from your bank account once per week via ACH transfer. The weekly amount may be a set dollar figure based on projected sales, or it may fluctuate based on actual weekly receipts. Fixed weekly ACH payments behave more like traditional loan payments and do not adjust to slow weeks unless you negotiating MCA terms a reconciliation process.
Know which type you are signing up for. A percentage-based daily holdback gives you natural breathing room during slow periods. A fixed weekly ACH debit does not.
Worked Example: Four Weeks of Repayment
Suppose you received a $50,000 advance at a 1.30 factor rate, owing $65,000 total. Your holdback rate is 12%. Here is what repayment looks like over four weeks with varying daily sales (assuming 6 business days per week):
| Week | Avg. Daily Sales | Daily Payment (12%) | Weekly Total | Cumulative Paid |
|---|---|---|---|---|
| 1 | $2,500 | $300 | $1,800 | $1,800 |
| 2 | $1,800 | $216 | $1,296 | $3,096 |
| 3 | $3,200 | $384 | $2,304 | $5,400 |
| 4 | $2,000 | $240 | $1,440 | $6,840 |
After four weeks, you have paid $6,840 of the $65,000 owed. At this pace, full repayment would take roughly 38 weeks. Notice that Week 2 — a slow week — cost you $504 less than Week 3, a strong week. The payment automatically scaled down without any calls to the provider or restructuring paperwork.
Holdback Percentage vs. Factor Rate
These two numbers control different things, and confusing them is a common mistake.
- Factor rate determines how much you pay back in total. A $50,000 advance at 1.30 means you owe $65,000. Period.
- Holdback percentage determines how fast you pay it back. A 12% holdback on high daily sales means faster repayment. A 12% holdback on low daily sales means slower repayment. Either way, the total remains $65,000.
A higher holdback percentage does not increase your total cost — it accelerates the timeline. A higher factor rate does increase your total cost.
What Happens to MCA Repayment If Business Slows Down?
This is the question every business owner asks, and the answer depends on your payment structure.
With percentage-based daily holdback: Your payments shrink automatically. If your restaurant normally does $3,000 a day but drops to $800 during an off-season month, your daily payment drops from $360 to $96 at a 12% holdback. You pay less, and repayment simply takes longer. The total owed does not change.
With fixed ACH payments: You still owe the same weekly amount regardless of revenue. If sales drop and your bank balance runs thin, the ACH withdrawal can overdraft your account or bounce entirely, triggering fees and potential default provisions in your contract.
During severe slowdowns, some providers offer reconciliation — they review your recent bank statements and temporarily reduce your payment amount to match actual revenue. Not all providers offer this, so ask about reconciliation terms before signing.
How Does MCA Repayment Compare to a Traditional Loan?
A traditional small business loan for $50,000 at 10% annual interest over 3 years would cost roughly $58,100 total, with fixed monthly payments around $1,614. You pay less overall, but you owe $1,614 every single month whether you had your best month ever or your worst.
An MCA for the same $50,000 at a 1.30 factor rate costs $65,000 total — more expensive. But payments flex with your sales. There are no monthly minimums to miss, no late fees in the traditional sense, and no collateral requirements. The tradeoff: you pay more for flexibility and speed of access.
For businesses with steady revenue, a traditional loan almost always costs less. For businesses with seasonal swings or limited credit history, the MCA’s flexible repayment structure can prevent the cash flow crises that fixed monthly payments create.
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