A merchant cash advance is not a loan: a funder buys a set amount of a business's future card or bank receipts for a smaller sum paid today, then collects a share of sales until the purchased amount is remitted. Driftland Advances, a small-business funding broker in Conway, Arkansas, explains how advances are priced and collected before Faulkner County owners sign anything.
| What it is | A purchase of future receivables. A merchant cash advance is not a loan. |
|---|---|
| Priced with | A factor rate, which fixes the total the funder collects |
| Collected by | A holdback percentage of sales, or fixed debits, often daily |
| Reconciliation | A clause that can bring fixed debits back in line with real sales |
| Watch for | Stacking bans, default events and personal guarantees |
| Who decides | The funder |
Why an advance is not a loan
A merchant cash advance is not a loan. A loan is borrowed money you owe back, plus interest, on a calendar. With an advance, the funder buys a specified amount of your future receipts at a discount: it pays you a smaller amount now and is entitled to collect the larger amount as your sales come in. Because it is structured as a purchase, an advance is priced, collected and enforced differently from a loan, and the protections that apply to loans may not apply.
Holdback and remittance
The holdback is the percentage of daily card sales or bank deposits remitted to the funder until it has collected the purchased amount. Some funders split it off at the card processor; others debit the business account each business day. When collections are a true percentage, slow days send less to the funder and busy days send more. When the contract uses a fixed daily or weekly debit instead, the amount stays the same whatever your sales were.
The factor rate sets the total
Instead of interest, an advance carries a factor rate: a multiplier on the amount advanced. The advance times the multiplier gives the total the funder will collect, and the difference is the cost. A factor rate is not an interest rate and cannot be compared with an APR directly. Because the cost is fixed at the start, collecting it over a shorter period makes the advance more expensive in annual terms, and remitting early usually saves nothing unless the contract offers an early-payoff discount.
To compare an advance with a loan, write down three numbers: the cash you actually receive after fees, the total the funder will collect, and the estimated number of days collection will take. Then set those against the total repaid and the term of any loan offer.
Reconciliation
Hunt through the contract for a reconciliation clause, which many advances include. If you pay a fixed daily amount and sales drop, you can ask the funder to adjust collections to the agreed percentage of actual receipts. The contract sets how you ask, how often, and what records you must send. Find this clause before you sign, and keep copies of the bank statements you would need to use it.
Stacking, default and credit reporting
Stacking means taking a second advance before the first has been fully collected. Two holdbacks against the same sales can leave too little for payroll and suppliers, and many contracts prohibit it. Read the default section closely; it may list events such as changing processors, closing the account the funder debits, or blocking a debit. Some contracts include a personal guarantee of the owner's performance and a confession-of-judgment clause.
Whether an advance shows up on business or personal credit reports depends on the funder. Many do not report regular collections, but a default can still lead to collections activity or a lawsuit. Ask the funder directly.
Who sometimes considers one
Businesses with steady card or deposit volume and a short, specific need sometimes look at an advance, particularly when a loan has been declined or would take longer than the need allows. Restaurants and shops are typical. Faulkner County had 218 restaurants and other eating places and 418 retail establishments with employees in 2023 (U.S. Census Bureau, County Business Patterns 2023). Having a lot of card sales does not by itself make an advance the right choice; first compare it with working capital financing, which is a loan with a set schedule.
Before you sign an advance
- Note three numbers: the amount advanced, the factor rate and the total the funder collects.
- List every fee and note whether it is subtracted from the advance.
- Confirm whether collection is a percentage of sales or a fixed debit, and how often it is taken.
- Find the reconciliation clause and read what it requires.
- Read the default events, the stacking clause and any personal guarantee.
- Ask whether early remittance reduces the total.
Advances are explained further in how a request moves. The sector pages show which kinds of business tend to look at them, and Census counts for Faulkner County give the local context.
By Driftland Advances · Updated
