A merchant cash advance is not a loan: a funder buys a portion of a business's future receipts for a lump sum and collects it through a holdback or fixed debits until a set total is remitted. Keelpark Capital Group, a small-business funding broker in Jackson, Tennessee, helps Madison County owners compare advances with loan options before introducing any request to funders, which set the terms.
| What it is | A sale of future receipts for a lump sum; not a loan |
|---|---|
| How it is collected | A percentage holdback of sales, or fixed daily or weekly debits |
| How it is priced | Usually a factor rate that fixes the total to be remitted |
| Key risks | Debits during slow periods, stacking, default terms, personal guarantees |
| Who sets the terms | The funder, not Keelpark Capital Group |
| Address | 109 N Church St, Jackson, TN 38301 · (731) 252-4018 |
What an advance is, and what it is not
A merchant cash advance is not a loan. The funder buys a portion of your future receivables, usually card sales or bank deposits, for a lump sum paid now. It then collects that portion until it has received the total agreed in the contract. Because it is structured as a purchase, it is described with different words: the money is remitted or collected, not repaid, and the price is usually expressed as a factor rate rather than an interest rate.
A factor rate is a multiplier applied once, at signing. Multiply the advance by it and you have the total the funder will collect. That total does not shrink if sales pick up and remittance finishes early, unless the contract says otherwise.
Holdbacks and fixed remittances
What is a holdback percentage? It is the share of each day's card sales, or of deposits, that goes to the funder. On a slow day the funder collects less; on a busy day, more. Many advances instead take a fixed amount by daily or weekly debit from the business bank account, which is simpler to plan around but does not adjust automatically when sales fall.
Check which method your offer uses and model it against your weakest weeks. A fixed debit that lands in the same week as payroll in a slow month is the scenario to plan for.
Reconciliation when sales fall
Many agreements with fixed debits include a reconciliation clause, which lets the business ask the funder to adjust the debit to reflect actual receipts. Read exactly how to request it, what records you must send, and how long the funder has to respond. A clause you cannot use in practice gives little protection.
Stacking, default and personal guarantees
What is loan stacking? In this context it means taking a second advance, or a loan, while the first is still being collected, so two sets of debits come out of the same account. Many agreements forbid it, and stacking is one of the fastest ways for collections to outrun revenue.
What happens if you default on a merchant cash advance? The contract defines default, which commonly includes blocking debits, changing bank accounts or diverting receipts. Remedies often include personal guarantees from owners and UCC filings against business assets. Do merchant cash advances report to credit? Practice varies by funder; ask directly, and ask what is reported if a default occurs.
When an advance comes up, and what to compare first
Advances are most often offered to businesses with steady card sales: restaurants, shops and service businesses. In Madison County that describes a large share of the economy; the county had 463 retail and 251 accommodation and food services employer establishments in 2023 (U.S. Census Bureau, County Business Patterns 2023). If your business takes most of its revenue by card, expect to see advance offers.
Before accepting one, put it beside a working capital loan and a line of credit. The MCA vs. term loan cost calculator works out the total remitted, and its page shows how to set it next to a loan's total repaid. An advance can still be the right call, for example when other options are not available, but it should be a decision, not a default.
Questions to ask a funder
- What is the total amount to be remitted, and what is the net amount we receive after any charges?
- Is collection a percentage holdback or a fixed debit, and how often?
- Is there a reconciliation clause, and how do we use it?
- Is there any discount for early payoff?
- What counts as a default, and what can the funder do then?
- Is a personal guarantee required, and what does it cover?
Keelpark Capital Group helps you work through these questions and compare the offer with loan options. A merchant cash advance is not a loan.
By Keelpark Capital Group · Updated