A merchant cash advance is not a loan; instead, it is a prepayment at a discount of your future business income. The merchant cash advance provider gives you a lump sum, which you return automatically on a daily basis, using a percentage of your daily credit card receipts or a fixed daily amount.
The percentage of your daily revenues that you pay is referred to as the “holdback” or retrieval rate. This may be anywhere from 5% to 20%, based on the size of the advance, your business’s credit card sales and the return period. Depending on the advance amount, terms may be as short as 90 days or as long as 18 months. The daily return payment begins immediately after the cash advance is received.
The amount you can borrow is determined by your average credit card sales. Merchant advance providers will review your receipts over the previous three to six months to calculate how large of an advance you’re eligible for.