An advance trades a sum now for a fixed total collected from card sales. Each case below turns the factor and the holdback into dollars and days with invented figures; the calculator on this page does the same for an offer.
At a glance
- Pays for
Short costs a card-sales business must cover now
- Collected
A share of each day’s card sales
- Priced by
A factor and a holdback percentage
How a merchant cash advance is collected from card sales in Wayne County, MI, with payroll as the example
Illustration only, invented figures: a Wayne County, MI coffee shop faces a $6,920 property tax bill and a $4,610 payroll in the same week and takes an $11,530 advance at a 1.31 factor in this invented example. The provider will collect $15,104.30 in all, a cost of $3,574.30.
Collection can run through the card processor. In this invented example the holdback is 12% of card sales, and on $1,480 of daily card sales that is $177.60 a day. At that pace the invented total is reached in 86 business days, counting the last partial day as a full one. A slower day sends less, a stronger one more; the $15,104.30 total does not move.
Snack and nonalcoholic beverage bars, the Census group for coffee shops, numbered 270 in Wayne County, MI in 2023 (County Business Patterns, NAICS 722515). The ZIP 48150 count for the same code and year is 8 (ZIP Code Business Patterns).
How to calculate a factor rate for a Livonia, MI auto shop, starting from a repair bill
To get the factor, take the amount the provider will collect and divide it by the cash the shop receives up front. Providers do not all quote it the same way, so two offers sometimes have to be put on the same footing first. Illustration only, invented figures: a Livonia, MI auto repair shop needs $9,140 for a repair bill on its tire machine and wheel balancer.
- Offer A, invented: $9,140 now, $12,520 to be collected. Dividing $12,520 by $9,140 gives a factor of about 1.37.
- Offer B, invented: $9,140 at a 1.34 factor. Multiplying gives $12,247.60 to be collected.
Side by side in this invented example, Offer A collects $272.40 more than Offer B for the same $9,140. The cost of each offer is its total minus the advance: $3,380.00 for A and $3,107.60 for B. The holdback decides how soon the total is collected, not how large it is.
Wayne County, MI had 1,108 auto repair and maintenance establishments with employees in 2023 (County Business Patterns). Nonemployer Statistics, a separate program, listed 2,249 auto repair and maintenance businesses without paid employees in the county for 2024.
Merchant cash advance vs a line of credit, tested on drug inventory at a Wayne County, MI pharmacy
Illustration only, invented figures: a Wayne County, MI pharmacy needs $14,360 for a drug order. An advance at a 1.22 factor with an 11% holdback on $2,750 of daily card sales would collect $17,519.20 at $302.50 a day over 58 business days in this invented example, a cost of $3,159.20.
| Month | Balance at start | Interest for the month | Paydown at month end |
|---|---|---|---|
| 1 | $14,360.00 | $181.89 | $4,786.67 |
| 2 | $9,573.33 | $121.26 | $4,786.67 |
| 3 | $4,786.66 | $60.63 | $4,786.66 |
The invented line costs $363.78 in interest over three months, $2,795.42 less than the advance, before any draw or annual fee the line carries. The trade is access: a line has to be in place before the order, while an advance is sized from card-sales history. Draw-by-draw cases sit on the business line of credit page.
The workings of a merchant cash advance, followed through a Wayne County, MI liquor store's insurance premium
- The store shares recent card-processing statements; a provider may size an offer from them.
- An offer names three things: the advance, the factor and the holdback percentage.
- Once the store signs, the provider deposits the advance.
- From then on, the agreed slice of every business day’s card sales moves to the provider, stopping once the full total has been collected.
Illustration only, invented figures: a Wayne County, MI beer, wine and liquor store takes an $8,260 advance at a 1.33 factor to pay its insurance premium. In this invented example the provider collects $10,985.80, with an 8% holdback.
On $3,100 of daily card sales the invented holdback is $248.00, and the total is collected in 45 business days. If daily card sales slip to $2,400, the invented holdback falls to $192.00 and collection stretches to 58 business days; the $10,985.80 total is the same either way. County Business Patterns counted 448 beer, wine and liquor stores in Wayne County, MI for 2023.
Factor rate in an MCA, read as dollars: wholesaler orders at a Livonia, MI convenience store
A factor reads like a small decimal, but its cost is clearer in dollars. Illustration only, invented figures: a Livonia, MI convenience store weighs a $7,450 advance for its wholesaler orders at three factors.
| Factor | Total collected | Cost of the advance |
|---|---|---|
| 1.18 | $8,791.00 | $1,341.00 |
| 1.25 | $9,312.50 | $1,862.50 |
| 1.36 | $10,132.00 | $2,682.00 |
In this invented table each 0.01 of factor adds $74.50 to the cost. At 1.36 the store hands over $2,682.00 for the use of $7,450, and that figure stays the same whether collection takes eight weeks or twelve, since no interest builds with time. County Business Patterns counted 153 convenience stores (NAICS 445120) in Wayne County, MI for 2023.
Future card receipts bought at a discount: what a merchant cash advance is, using a Wayne County, MI nail salon's supplier payment
A merchant cash advance is a purchase of future receivables: the provider buys a set amount of the business’s future card sales for less than that amount, and the difference is its cost. Illustration only, invented figures: a Wayne County, MI nail salon needs $5,180 for a supplier payment and sells $6,993.00 of future card receipts for it in this invented example, a 1.35 factor.
In this invented example the provider keeps 14% of the salon’s card sales; on a $760 day that is $106.40, and 66 business days of that, the last one partial, reach the invented total. No interest rate appears anywhere in the agreement; the cost was fixed at signing at $1,813.00.
Because the provider is buying receipts rather than lending, the agreement reads differently from a loan, and its terms deserve a careful read before signing. County Business Patterns counted 60 nail salons with paid employees in Wayne County, MI for 2023 (NAICS 812113). Equipment for that kind of salon, from manicure tables to an autoclave, sits on fixed schedules in the nail salon article.
By Lakebridge Finance · Updated