This page from Sableport Capital Group in DeLand, Florida explains merchant cash advances: what they are, how a factor and a holdback set the total cost, how revenue-based financing differs, which businesses they suit, and the alternatives to compare first. The provider buys receivables not yet earned, so the advance is no loan. Worked figures are invented.
At a glance
- Accommodation and food services employers, Volusia County, FL
1,373 (County Business Patterns 2023)
- Retail trade employers
2,026 (County Business Patterns 2023)
- Employers under five employees
60.6% (County Business Patterns 2023)
Merchant Cash Advance in Florida: What the Product Is
Whatever the marketing says, a merchant cash advance is not a loan for a DeLand, FL shop. A provider buys a portion of the card sales a business will make in the future and pays a lump sum for it now. The business then remits an agreed share of each day's card receipts, the holdback, until the provider has collected the purchased amount.
Because collections follow card sales, a slower week means smaller collections and a busier week larger ones. That flexibility has a price: the total collected is set at the start by a factor, and it stays the same however quickly or slowly it is reached.
How a Factor and a Holdback Set the Cost
Illustration only, invented figures: a provider advances $40,000 at a factor of 1.32. The business remits $52,800 in total, so the cost of the advance is $12,800 (our arithmetic). With a holdback of 12% and card sales of $3,600 a day, about $432 is collected each day, and the total is reached in about 122 business days of card sales (our arithmetic).
If card sales drop to $2,700 a day, the same total takes about 163 days to collect (our arithmetic). In this invented case the dollar cost stays $12,800, but it is spread over more days. Converting that cost into an annual percentage gives a figure that rises the faster the total is collected, which is why the factor alone understates it.
Revenue-Based Financing vs a Merchant Cash Advance for an Auto Shop
Revenue-based financing is a broader term. Some providers use it for advances collected from all deposits rather than card sales alone, by a fixed daily or weekly debit that can be adjusted when revenue changes. A merchant cash advance in the narrow sense is collected from card receipts through the processor.
For an auto repair shop, where a large insurance job can be paid by check or transfer rather than card, an advance tied to card sales may collect unevenly. Auto repair and maintenance counted 319 employer establishments in Volusia County, FL in 2023 (County Business Patterns 2023). Read how collections are measured, and whether a reconciliation clause lets them fall when receipts fall.
Merchant Cash Advance Companies in Florida: What to Compare in an Offer
- The purchase price, the factor and the total to be remitted.
- The holdback percentage, or the fixed debit amount if collections are by debit.
- Every fee taken from the upfront sum, so the net amount received is clear.
- Whether a reconciliation clause adjusts collections when sales fall, and how to invoke it.
- What the agreement says about a second advance from another provider.
In Volusia County, FL, retail trade had 2,026 employer establishments in 2023 and accommodation and food services 1,373 (County Business Patterns 2023). Card-heavy businesses like these are the ones card-sales advances are built around.
Merchant Cash Advance Funding for a Practice Paid Mainly by Insurers
Physician and dental offices collect much of their revenue from insurers by electronic transfer rather than at a card terminal. An advance tied to card receipts then has a small base to collect from. Offices of physicians counted 443 employer establishments in Volusia County, FL in 2023 and dentists 188 (County Business Patterns 2023).
For a practice waiting on claims, a line of credit or a working capital loan tied to receivables is a closer fit. Compare total dollars for the same need before choosing either.
Stacking, Renewals and the Daily Balance Test
A second advance taken while the first is still being collected is called stacking. Two holdbacks then come out of the same card sales, and the business has less left to run on. A renewal, where a provider advances more before the first total is collected, can roll the remaining balance into a new, larger purchase.
Before signing, run the daily collection against the account's daily balance. The average daily balance worksheet shows how to work out that figure from a month of statements.
Alternatives to Weigh First: a Credit Line, Working Capital or Equipment Financing
A line of credit charges interest only on what is drawn and can be paid down at any time. A working capital loan has a stated rate and schedule. Equipment financing spreads the cost of an item over its working life. Each can be set beside an advance in total dollars. The comparison page lines up all six products.
The longer article on how revenue-based financing works sets an advance and a credit line side by side with invented figures.
The article on how revenue-based financing works sets a card-sales advance beside a credit line with invented figures.
By Sableport Capital Group ยท Updated