What is a holdback, and how much of my sales will it take?
Sterling's answer The holdback is the slice of each day's sales the provider keeps until the advance is paid back. A true percentage bends with slow months, but some contracts swap it for a fixed daily debit, so check which one you're signing.
Want a straight answer for your business?
See who'll fund meA holdback is the percentage of your sales that a cash advance provider collects each day or week until the full payback is reached. If the holdback is 15% and you take $4,000 in card sales today, $600 goes to the provider. It is the repayment mechanism, separate from the factor rate, which sets the total you owe.
How it works in practice
A holdback is collected in one of two ways.
- Split from card sales. Your card processor sends the agreed share straight to the provider and the rest to you. New York's disclosure regulation gives this example wording: "Each business day, your credit card processor will remit 15% of your gross receipts to us and send any remaining amounts to you. This financing does not have a fixed payment schedule and there is no minimum payment amount."
- Fixed debit with a true-up. The provider estimates what the percentage would collect and takes a set amount from your bank account each day. A true-up mechanism then lets you, or the provider, adjust the payments so the total "more closely reflects a split rate listed in the contract".
The first bends with your sales automatically. The second only bends if you ask, and only as the contract allows.
The worked number
Take a $50,000 advance at a 1.35 factor: $67,500 to repay. The holdback is 15% and your sales are $80,000 a month.
| Month's sales | Collected at 15% | Months to repay $67,500 |
|---|---|---|
| $80,000 | $12,000 | about 5.6 |
| $60,000 | $9,000 | 7.5 |
| $40,000 | $6,000 | about 11.3 |
The total stays at $67,500 in every row. What changes is time. In a slow stretch you pay less each month and the deal runs longer, which lowers the yearly cost. In a busy stretch you repay faster and the yearly cost rises. For a 1.35 factor, our table puts 6 months daily at about 126% APR and 9 months at about 84%.
Sterling's take: a holdback is the honest bit of a cash advance. If yours is a fixed debit, make sure the reconciliation clause actually works.
What to check in the contract
- The percentage. Written as the "split rate" or "specified percentage".
- Fixed or variable. Is there a set daily amount? If so, how was it calculated? New York requires providers to explain this, for example basing a daily payment on an estimate of 15% of average monthly income.
- Reconciliation. How you request it, what proof you need, and how fast it applies.
- Minimum payments. Any minimum turns a sales-linked deal into something closer to a loan.
- Days collected. Business days only, or every calendar day.
What to do next
Ask the provider for the holdback percentage and the daily amount in writing, and check the two agree with your real sales. Then convert the offer with the MCA APR calculator at your normal sales level and at a slow month's level, so you know the range. If a fixed debit would strain you in a quiet month, read daily vs weekly payments before you sign.
Run your own numbers: Factor rate to APR converter
Estimated APR
125.9%
Very expensive.
- You receive
- $50,000
- You pay back
- $67,500
- Cost of the money
- $17,500
- Cost per $1 received
- $0.35
- 126 daily payments of
- $535.71
- Effective annual rate
- 251.1%
An estimate on the money you actually receive, with daily payments counted as 21 business days a month. Not an offer and not a lender's disclosure.
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Questions owners ask
Is the holdback the same as the factor rate?
No. The factor rate sets how much you repay in total. The holdback sets how fast you repay it, as a share of sales.
Does a higher holdback cost more?
It doesn't change the total payback, but it repays the advance faster. With a fixed factor, faster repayment means a higher yearly cost.
What if my sales fall?
With a true percentage holdback, the provider collects less and the advance takes longer to repay. With a fixed daily payment, you may need to use the reconciliation clause to get it adjusted.
Can I change the holdback after signing?
Only if the contract allows it. Look for a reconciliation or true-up clause and the steps to trigger it.