Providers set every term.
This is no loan; the provider pays today for a slice of card sales still to come. The total collected is the advance times the factor rate, taken as a daily share of card sales. Examples use invented figures computed step by step.
At a glance
- Full-service restaurants, Fulton County, GA
1,363 employer establishments (CBP 2023, NAICS 722511)
- Nail salons, Fulton County, GA
127 employer establishments (CBP 2023, NAICS 812113)
- Limited-service restaurants, ZIP 30097
79 employer establishments (ZBP 2023, NAICS 722513)
How an advance is collected from card batches, explained with a Fulton County, GA restaurant's card receipts
A merchant cash advance is tied to card sales: the provider buys a share of future card receipts and collects it by the method its offer states, from each card batch or as a set daily debit.
For a Fulton County, GA restaurant that takes nearly all of its sales by card, the card-sales share tracks the business closely. County Business Patterns listed 1,363 full-service restaurants with paid staff in the county in 2023.
How to calculate a factor rate: a repair bill at a Johns Creek, GA salon, step by step
- Start with the advance: an invented $20,000 to cover a salon's repair bill.
- Multiply by the factor rate on the offer, here an invented factor of 1.32: $20,000 x 1.32 = $26,400 to be collected.
- Subtract the advance to see the invented offer's cost: $26,400 minus $20,000 is $6,400.
- Divide the total by the daily share of card sales to see the time: 12% of an invented $1,800 in daily card sales is $216 a day, so about 123 business days.
Illustration only, invented figures. The calculator on this page runs these same steps from an advance, a factor rate, a holdback and average daily card sales.
Merchant cash advance vs a line of credit for payroll at a Johns Creek, GA retailer
| Point | Merchant cash advance | Line of credit |
|---|---|---|
| What it is | Card sales bought ahead of time; not a loan | A borrowing limit |
| Cost set by | A factor rate, fixed at the start | Interest on the balance drawn |
| Collected or paid | A daily share of card sales | Monthly payments |
| Reuse | A new advance each time | Draw again after paying down |
See the line of credit page for a draw-and-paydown example. The Johns Creek, GA page sets an advance beside bank, credit union and online loans.
How does a merchant cash advance work at a Johns Creek, GA restaurant with daily card sales?
A provider may first review a few months of card processing statements; any offer then names the advance, the factor rate and the holdback percentage. After signing, the advance lands in the restaurant's account and, under a holdback, the provider's share comes out of card settlements each business day. Within ZIP 30097, 79 limited-service restaurants with paid staff were on the 2023 ZIP Code Business Patterns list.
Because collection follows card sales, a week with fewer card sales means less collected that week and a longer time to reach the total. The total itself does not change.
Before signing, a restaurant owner can ask the provider three things: the exact holdback percentage, whether it is taken from every card batch or a fixed daily debit, and what happens to the remaining total if the restaurant changes card processors.
What is a factor rate in an MCA? Supplier payments at a Fulton County, GA boutique
Written as a decimal like 1.25, the factor rate is what the advance gets multiplied by to reach the total the provider collects. Illustration only, invented figures: a Fulton County, GA boutique takes $15,000 for supplier payments at a factor of 1.25; the provider collects $18,750.
The boutique knows the full cost on the day it signs: the factor applies once to the whole advance. It is not an annual rate, so the two cannot be compared directly; the shorter the collection period, the higher the cost works out over a year.
Why a merchant cash advance is a purchase of card sales: a Fulton County, GA nail salon
In a merchant cash advance, the provider buys a share of receivables the salon has not earned yet. There is no interest rate and no fixed monthly due date: the provider collects its share as card sales come in. For that reason the advance is not a loan.
A nail salon weighing an advance in Fulton County, GA is one of 127 nail salons with paid staff there in 2023 (County Business Patterns). A salon taking an advance still agrees to the provider's contract terms, so read the holdback, the total and any default terms before signing. Loan products, which a merchant cash advance is not, are on the business loans overview.
By Meadowmoor Commercial Capital ยท Updated