For a Lexington, KY business, a merchant cash advance is not a loan: a funder buys part of a business's future card or bank receipts at a discount and collects them as a set share of daily sales. It can suit card-heavy restaurants, shops and salons that need cash quickly. Lodgeleaf Business Loans explains the trade-offs; funders set every term.
| What it is | Future card or bank receipts bought at a discount; it is not a loan |
|---|---|
| How the funder collects | A holdback share of daily sales, set in the agreement |
| Cost | Set by a factor, not an interest rate; compare the total payback |
The agreement behind an advance, and why it is no loan
No. Under its agreement a merchant cash advance is not a loan. The funder buys a portion of your future receipts for a price paid up front. There is no interest rate and often no fixed term: the funder collects its purchased amount as sales come in. That structure is why it is treated differently from the loans on this site.
A merchant cash advance from offer to final remittance
- The funder reviews your card-processing or bank statements.
- It offers an advance amount and a total amount to be collected, set by a factor.
- A holdback share of each day's card sales, or a fixed daily or weekly debit, goes to the funder.
- Collection continues until the total agreed amount has been remitted.
Because collection follows sales, a slower week usually means a smaller collection that week, and the advance takes longer to complete.
What a holdback percentage means in dollars per day
The holdback is the share of each day's card sales the funder collects. A made-up illustration, not terms anyone offers: if an agreement set the holdback at one-tenth, $10 of every $100 in card sales that day would go to the funder until the total was met. A higher holdback finishes sooner but leaves less cash each day for payroll, rent and suppliers.
A merchant cash advance example: cost and days, worked by hand
The cost of an advance is set by a factor that multiplies the advance. Each 0.1 in the factor adds $10 of cost for every $100 advanced. So a hypothetical $20,000 advance with a factor 0.3 above one would mean $26,000 to be remitted, of which $6,000 is the cost.
The time it takes matters as much as the cost. If the holdback collects $300 a day, that $26,000 takes about 87 business days; at $200 a day it takes about 130. The same $6,000 cost spread over fewer days is far more expensive in annualized terms, which is why advances are hard to compare with loans by looking at the factor alone.
Merchant cash advance vs business loan, row by row
| Feature | Merchant cash advance | Business loan |
|---|---|---|
| Legal nature | A purchase of future receipts, never a loan | Money lent, then paid back with interest |
| Cost expressed as | A factor that multiplies the sum advanced | An interest rate and fees |
| Collection or repayment | Share of sales or a set debit | Scheduled payments |
| Speed of completion | Depends on sales volume | Fixed by the term |
Merchant cash advance vs line of credit over the same months
A line of credit charges interest only on what you draw and can be reused. An advance is a one-time purchase of receipts with a fixed total to be remitted. If your business has the history for a line, compare the two on total cost over the same period before choosing the advance. The remaining options are lined up on the funding options page.
One week of holdback, worked by hand
A made-up week of card sales for a small Lexington, KY cafe, with a hypothetical holdback of one-tenth. None of these figures are terms anyone offers.
| Day | Card sales | Collected at one-tenth | Left for the business |
|---|---|---|---|
| Monday | $1,800 | $180 | $1,620 |
| Tuesday | $2,100 | $210 | $1,890 |
| Wednesday | $2,400 | $240 | $2,160 |
| Thursday | $3,000 | $300 | $2,700 |
| Friday | $4,200 | $420 | $3,780 |
| Saturday | $4,500 | $450 | $4,050 |
| Sunday | $2,000 | $200 | $1,800 |
| Week | $20,000 | $2,000 | $18,000 |
With a true percentage holdback, the slow Monday sends less to the funder than the busy Saturday. With a fixed daily debit, the same amount leaves the account every day whatever the sales, which is the version to test hardest against your quiet days.
Questions to put to a funder in writing
- What dollar total will the funder collect altogether?
- Is collection a share of card sales, or a fixed daily or weekly debit from the bank account?
- If sales drop, can the daily amount be adjusted to actual receipts, and how is that requested?
- Does the agreement restrict taking a second advance or other financing?
- Is there any discount for completing early, and is it written into the agreement?
Answers on paper let you compare an advance with a line of credit or a loan on total dollars and on cash left each day.
Fayette County, KY trades with card-heavy sales
Restaurants run on card sales every day; Fayette County had 686 restaurants and other eating places with employees in 2023 (CBP).
Retail stores with strong card volume and thin cash between seasons.
Salons and barbershops, which take many payments by card.
Sector notes are under funding by industry and county figures on the Lexington, KY page. Lodgeleaf's request steps are laid out on how it works.
By Lodgeleaf Business Loans · Updated