Understanding Holdback Percentage and How It Affects Your MCA Payments

So, What Exactly Is Holdback Percentage?

Look, when you get a merchant cash advance (MCA), it's not like a traditional loan. You're not making fixed monthly payments. Instead, the funding company gets a percentage of your daily or weekly credit and debit card sales until the advance is paid back. That percentage? That's your holdback percentage. Simple as that.

It's called 'holdback' because we (the funding company) essentially 'hold back' that specific percentage directly from your processing company before the money even hits your bank account. So, if your holdback is 10% and you process $1,000 in card sales today, we'd get $100 and you'd get the remaining $900. It's a pretty straightforward way to repay the advance, especially for businesses with fluctuating sales.

How Does Holdback Affect Your Daily Cash Flow?

Honestly, this is where it really matters for most business owners. A higher holdback percentage means more of your daily card sales are going towards repayment. Shocker, right? But it's true. This can significantly impact your daily cash flow, especially during slower periods.

I had a client last year, a restaurant owner in Miami, who took an MCA with a 20% holdback. Great sales during peak season, no problem. But then it hit the off-season, and suddenly, that 20% felt like a truck. They were making enough to cover their operating costs, but it was tight. Really tight. We ended up working with them to restructure a different funding product later down the line, but it was a good lesson for them in understanding that holdback upfront.

The key thing to remember is that because your payments are tied to your sales, they can go up and down. If you have a killer sales day, you pay back more. If it's a slow day, you pay back less. This flexibility is actually one of the biggest benefits of an MCA for many businesses. But you need to understand that percentage and what it means for your daily operating cash.

Is There an 'Ideal' Holdback Percentage?

Not really, no. It completely depends on your business, your sales volume, and your cash flow needs. There's no one-size-fits-all answer here. What's comfortable for a high-volume retail store might sink a smaller service-based business. We typically see holdback percentages anywhere from 5% to 20%, sometimes a little higher in certain situations.

When we're putting together an offer for a merchant cash advance, we're always looking at your historical sales data. We want to make sure the holdback percentage is sustainable for your business. We don't want to put you in a situation where you're struggling to keep the lights on after making your daily repayment. That's just bad business for everyone involved.

Things we consider when determining a holdback include:

• Your average daily/weekly credit card sales
• The total advance amount you're receiving
• The factor rate (how much you're paying for the advance)
• How quickly you want to pay back the advance
• Your specific industry and typical sales cycles

How LoanQuail Looks at Holdback – And Your Options

Here at LoanQuail, we offer a few different types of funding, and MCAs are just one of them. For an MCA, we work to find a holdback percentage that's going to work for your business, not against it. We've been doing this a while, and we know that putting too much pressure on your daily cash flow is a recipe for disaster.

But let's say an MCA with a certain holdback might not be the best fit after we look at your numbers. That's okay! We also offer:

• Revenue-Based Funding: Similar to an MCA but often based on total revenue, not just card sales. Can sometimes offer different repayment structures.
• Business Lines of Credit: More flexible, like a credit card for your business. You only pay interest on what you use. No holdback percentage involved there.
• Real Estate-Backed Business Loans: If you own commercial property, this can be a great option for larger amounts and potentially lower rates, with fixed monthly payments.

The point is, we don't just push one product. We want to understand your business, your cash flow, and what you're trying to achieve. Then, we can help you figure out if an MCA with a specific holdback is right, or if one of our other funding options makes more sense. It's about finding the right tool for the job.

If you're trying to understand your funding options and how holdback percentage or any other repayment structure might fit your business, just reach out. We're happy to walk you through it. You can even check your eligibility with LoanQuail right now and see what options might be available.