Cobbleview Loans, a small-business funding broker in Frederick, Maryland, introduces some owners to merchant cash advance funders. A merchant cash advance is not a loan: a funder buys a fixed amount of future receipts at a discount and collects it through a holdback or fixed remittance. The total cost is often higher than a loan, so read every term before signing.
| What it is | Receipts sold forward; not a loan |
|---|---|
| Collection | Holdback share or fixed remittance |
| Priced by | Factor rate (a multiplier, never an interest rate) |
| Frederick County, MD food and lodging employers | 532 establishments (CBP 2023) |
| Who decides | The funder |
How a merchant cash advance is built
A merchant cash advance is not a loan. The funder purchases a specific dollar amount of your future receivables, the purchased amount, and pays you a smaller sum today. The difference between the two is the funder's cost to you. Because it is structured as a sale of receivables rather than a debt, the terminology and the contract differ from a loan's.
Holdback percentage and remittance
The holdback is the share of each day's receipts the funder collects until the purchased amount is delivered. With a split arrangement, the card processor sends that share directly. With a fixed remittance, the funder debits a set amount from the bank account each business day or week, an estimate meant to approximate the holdback.
Reconciliation
If sales fall, a fixed daily debit can take more than the agreed share of receipts. Many contracts allow reconciliation: you ask the funder to adjust the remittance to match actual receipts. Read how reconciliation works, how often you may request it and what records the funder wants before you sign.
Factor rate, and what it adds up to
Advances are usually priced with a factor rate, a multiplier applied to the amount advanced to give the purchased amount. A factor rate is no interest rate, and the two cannot be lined up directly. A short collection period at a given factor rate can mean a very high effective cost. Always compare the total delivered against the cash received, and ask how long collection is expected to take.
Stacking
Stacking is adding another advance, or a loan, before the first advance has been fully collected. Each new funder takes its own share of receipts, and many contracts prohibit stacking outright. Two or three daily debits on the same account can leave little to run the business on, so tell any funder or lender about existing advances.
Credit reporting and default
Many funders do not report advances to business credit bureaus, though some check credit before funding and some file a UCC statement on receivables. If a business stops delivering receipts in breach of the contract, consequences can include collection action, a claim under any personal guarantee and enforcement of the UCC filing. Ask exactly what counts as a default.
What to ask an advance funder before signing
- What is the purchased amount, and how much cash will I actually receive?
- Is collection a split of card receipts or a fixed debit, and how often?
- How do I request reconciliation, and what records do you need?
- Does the contract prohibit other financing while this is collected?
- Is there a personal guarantee, and what triggers it?
When owners consider an advance instead of a loan
Advances are most common at businesses with steady card sales, such as restaurants and retail stores, that need cash quickly and may not qualify for a loan. If time allows, compare a working capital loan, which is a loan with a fixed schedule, before accepting an advance. Frederick County had 532 accommodation and food services employer establishments in 2023 (U.S. Census Bureau, County Business Patterns 2023); funding by sector and local numbers and contacts have more detail, and the process, step by step explains how we compare offers.
By Cobbleview Loans · Updated
