Holdback

What is holdback?

Holdback is the share of each day's card receipts that goes to the advance provider instead of your bank account. The provider either takes it through your card processor before settlement or pulls it from your account by ACH. It continues until the full payback amount, set by the factor rate, is collected.

Because holdback is a percentage rather than a fixed payment, there is no set term. Strong sales mean you repay faster, weak sales mean slower, which is the one real advantage of a merchant cash advance over a fixed daily payment loan. Many advances now use a fixed daily ACH instead, which removes that flexibility.

How is holdback calculated?

Multiply daily card sales by the holdback percentage to get the daily payment, then divide the payback by that figure to estimate the repayment period.

• You receive a $40,000 advance at a 1.3 factor rate, so the payback is $52,000.
• You average $2,000 a day in card sales and the holdback is 15%.
• The provider keeps $300 a day.
• $52,000 divided by $300 is about 173 business days, roughly eight months.

If sales drop to $1,500 a day, the split falls to $225 and repayment stretches to about 231 business days. The total stays $52,000 either way. Our MCA true cost calculator converts this into an APR you can compare.

What do lenders consider normal?

Holdback percentages typically run from 10% to 20% of daily card sales. Restaurants, retailers and salons with heavy card volume often see 10% to 15%. Businesses with lower or less predictable card sales see higher percentages, because the provider wants repayment inside a set window, typically four to twelve months.

Providers set the holdback so that, at your current sales, the advance repays in their target period. If your sales are seasonal, ask how the holdback behaves in slow months and whether there is a minimum payment, since some contracts quietly add one.

What should you watch for?

Watch for a holdback that is really a fixed daily ACH. If the contract takes the same dollar amount every day regardless of sales, you have lost the main benefit and the advance behaves like a very expensive short term loan. A true holdback contract should let you ask for an adjustment when sales fall; know how to request it.

Watch for the processor lock in, since many providers require you to use their card processor for the life of the advance, sometimes at a higher processing rate. And watch your margin: 15% of sales is often more than your profit, which means the advance is repaid from money you would otherwise pay suppliers with.

Related terms

Holdback is the repayment side of a cash advance; the factor rate is the cost side, and together they drive the real APR. Providers usually also file a UCC lien. You will see holdback on merchant cash advances and in a looser form on revenue based financing. You can apply here, or ask your AI assistant to model the daily split against your sales and apply for you through our MCP server.