Holdback

Mechanically it is a split at the processor. Your card batches settle as usual, the agreed share is diverted to the funder, and the remainder lands in your bank account. Nothing is debited from your balance, because the money never fully arrives in it. The share stays fixed for the life of the deal; the dollars it produces do not. A heavy Saturday sends more, a dead Tuesday sends less, and the collection curve tracks your sales without anyone filing a request.

That behavior is the reason the structure exists. A merchant cash advance is written as a purchase of future receivables, and a holdback is the purest way to collect one: the funder is literally taking its share of the receipts as they arrive. Card-heavy businesses feel this most in a slow stretch, which is why the mechanism shows up so often in restaurant financing and in revenue-based financing generally.

The trade is that your term floats. Because the holdback delivers dollars rather than days, a strong season finishes the payback amount sooner and a weak one stretches it out. The total cost never moves, since it was fixed by the factor rate at signing, but the annualized cost does: finishing early means paying the same dollars over fewer months, which is more expensive per month, not less. Run both ends of that range in the MCA calculator before you sign, not after.

For your file, a holdback structure changes what underwriting reads. The funder cares about card volume, refunds and chargebacks on your merchant processor statement rather than only your bank deposits, and it usually needs your processor to cooperate with the split. Switching processors mid-deal is generally a contractual problem, so read that clause before you sign anything with a new payments vendor.

The confusion worth clearing is holdback versus fixed debit. Plenty of deals marketed as advances collect a flat dollar amount by ACH remittance every business day or week, and a flat debit does not know your sales fell. Only a true percentage-of-sales holdback flexes automatically. If flexibility is why you chose the product, confirm which one is actually in the agreement, and check whether a reconciliation clause exists if it is not.

The second confusion is holdback with factor rate. The holdback is the collection rate, the share taken as sales happen. The factor is the price, the multiplier that decides the total. Two offers can carry the same holdback and cost thousands of dollars apart, so compare the totals side by side in the offer comparison tool rather than the collection share.