Holdback
A holdback is the fixed percentage of a business's daily or weekly sales that a merchant cash advance provider collects automatically until the agreed amount is delivered.
With a merchant cash advance, you do not make a fixed monthly payment. Instead the provider takes a set share of each day's or week's card sales or deposits, called the holdback, until the full purchased amount is collected. A 12 percent holdback means 12 cents of every sales dollar goes to the provider.
The holdback flexes with your sales, so busy days send more and slow days send less, and the collection period stretches or shrinks with revenue. It is part of a purchase of future receivables, not a loan, so the cost is set by the factor rate rather than interest.
Common questions
How is a holdback different from a fixed payment?
A fixed payment is the same every period. A holdback is a percentage of sales, so the dollar amount rises and falls with your revenue.
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