What is a holdback, and how does it change my repayments?
Sterling's answer The holdback is the slice of each day's card takings the funder keeps until the advance is repaid. It flexes with your sales, which is its whole point, but the total you repay does not flex at all.
Want a straight answer for your business?
See who'll fund meA holdback is the percentage of your daily card (or sales) takings that goes to repay a merchant cash advance. If the holdback is a fixed share, a busy day repays more and a quiet day repays less, until the agreed total is collected. It changes the pace of repayment, not the price. The price is set by the factor rate.
How a holdback works
You receive an advance and agree a total repayable, for example £10,000 at a 1.35 factor rate, so £13,500. The funder then takes a set percentage of each day's card takings until that £13,500 is collected.
- Busy month: more taken each day, advance repaid sooner.
- Quiet month: less taken each day, advance repaid later.
- Total: £13,500 either way.
The holdback is often collected through your card processor before the money reaches your bank account, or by a daily debit that the funder recalculates from your card takings.
Holdback vs fixed debit
Not every "merchant cash advance" uses a true holdback. Many use a fixed daily or weekly debit instead.
| Percentage holdback | Fixed daily or weekly debit | |
|---|---|---|
| Payment amount | Moves with takings | Same every time |
| Slow month | Pays less | Pays the same |
| Term | An estimate | Known in advance |
| Example (£10,000 at 1.35, 6 months) | Varies day to day | 126 daily payments of £107.14 |
A fixed debit is easier to plan for. A holdback is kinder in a bad month. Ask which one you are being offered, in writing.
What the holdback does to the APR
Because the total is fixed, paying it back faster makes the money dearer per year. £10,000 at a 1.35 factor rate repaid daily over 6 months is about 126% APR. If a strong season clears it in 3 months, that is about 250%. If a slow year stretches it to 12 months, about 63%.
So the busier you are, the more expensive the advance becomes in APR terms, even though you pay the same pounds. That is the trade you are making for flexibility.
Sterling's take: run the calculator twice, once at your best month and once at your worst, and make sure you are happy with both.
What to check in the contract
- Is it a percentage of takings or a fixed amount?
- Which takings: card only, or all sales?
- Can the percentage be changed, and by whom?
- What happens if you change card provider or close the account?
- Is there a personal guarantee, and what triggers it?
What to do next
Convert your offer to an APR at two speeds in the MCA APR calculator. Then read daily vs weekly repayments and the full merchant cash advance guide.
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
Does a holdback mean I pay less if sales fall?
On a true holdback, yes: a fixed percentage of a smaller day is a smaller payment. On a fixed daily debit, no. Check which one your contract actually says.
Does a lower holdback make the advance cheaper?
No. The total repayable is set by the factor rate. A lower holdback only stretches the same total over more days.
Can the holdback percentage change?
Only as the contract allows. Some agreements let either side request a change if sales move a lot. Read that clause before you sign.
What if I change card terminal provider?
Check your agreement first. Where the holdback is collected through your card processing, the contract may restrict switching without the funder's consent, so ask before you move.