Oceangate Funding Group, a small-business funding broker in Ogden, Utah, explains merchant cash advances: a purchase of future receivables, not a loan, collected through a holdback on sales or a fixed debit. The cost is set by a factor rate. Funders review deposits and card volume, then decide and set terms. Stacking several advances is a common and costly trap.
| What it is | A purchase of future receivables. A merchant cash advance is not a loan. |
|---|---|
| How it is collected | A holdback share of sales, or a fixed daily or weekly debit |
| Cost | A factor rate times the advance gives the total to be remitted |
| Watch for | Stacking, reconciliation terms, default clauses, personal guarantees |
| Funders usually review | Bank deposits and card sales volume |
How an advance works
The funder pays an amount now in exchange for a larger amount of your future receivables. The difference is set by a factor rate: an advance multiplied by the factor rate gives the total amount to be remitted. Collection then comes from sales. With a holdback, the funder takes an agreed percentage of card or bank deposits each day, so collections fall when sales fall. With a fixed debit, a set amount leaves the account on a schedule, and the agreement should explain how to request an adjustment if sales drop.
Because a merchant cash advance is not a loan, it is not described with an APR and the agreement uses different terms: purchased amount, specified percentage, reconciliation. Read those definitions carefully; they decide what happens in a slow month.
Reconciliation, default and personal guarantees
Reconciliation is the process for adjusting fixed debits to match actual sales. Ask how to request it, how often, and what records the funder needs. Default clauses list what counts as a breach, such as switching bank accounts or closing the business, and what the funder can then do. Many agreements also include a personal guarantee of the owner's performance under the contract. Ask a lawyer to read any agreement you do not fully understand.
Stacking: what it is and why it hurts
Loan stacking, or MCA stacking, means taking a second or third advance while the first is still being collected, often from different funders. Each new advance draws on the same deposits, so the combined holdbacks or debits can take a large share of daily revenue. Many agreements prohibit additional advances without consent, so stacking can also trigger a default.
Some sales pitches present stacking as a way to cover the first advance's payments. That is the pattern to stop at. If one advance is straining cash flow, a second one usually makes it worse; ask about consolidation into a longer working capital structure instead, and be wary of any offer that promises to solve the problem quickly.
A worked example, with the arithmetic shown
Hypothetical figures, chosen only to show the method: an advance of $20,000 with a 1.3 factor rate means $26,000 to be remitted, a cost of $6,000. If the holdback is 10 percent of daily card sales and those sales average $2,000 a day, the funder collects about $200 a day, so the $26,000 takes roughly 130 sales days. If sales slow to $1,500 a day, collections drop to $150 and the period stretches to about 173 sales days. None of these figures is an offer.
Questions to put to any funder
- What is the total amount to be remitted, in dollars?
- Will you collect through a percentage holdback or a fixed debit, and on what schedule?
- How do I request reconciliation, and how quickly is it processed?
- Which events count as default under this agreement, and what are your remedies?
- Does the owner sign a guarantee, and of which obligations?
Ask for the answers in writing, and compare them with a loan offer of the same size.
When an advance may fit, and when it does not
An advance is sometimes used by businesses with steady card sales, such as restaurants and retailers, that need money for a short, specific purpose and cannot wait for a loan decision. It is a poor fit for long-term needs, for businesses with thin margins, and for anyone already carrying another advance. Compare it with a working capital loan or a credit line on the total cost and the effect on daily cash.
A merchant cash advance is not a loan, and an SBA loan is not an advance; searches for SBA loans in Utah lead to lenders participating in SBA programs, which we do not arrange. Local business figures are on our Ogden, UT page, sectors that use advances most are under the industry pages, and the four steps explain how we handle a request.
By Oceangate Funding Group · Updated