Firleaf Lending Group, a small-business funding broker in Bowling Green, Kentucky, explains merchant cash advances and can present a request to funders. A merchant cash advance is not a loan: the funder buys a portion of future receipts and collects it through a holdback on sales. The factor rate, the holdback and the rest of the contract come from the funder.
| What it is | A purchase of future receipts, not a loan |
|---|---|
| Priced by | Factor rate, not interest |
| Collected by | Holdback on sales or fixed debits |
| Watch for | Stacking and default clauses |
| Compare by | Total collected and speed of collection |
| Who decides | Funders, not Firleaf |
Is a merchant cash advance a loan in Kentucky?
No. A merchant cash advance is not a loan. It is structured as a sale: the business receives money now and agrees that the funder will collect an agreed amount from its future card or bank receipts. There is no interest rate and no fixed term in the way a loan has them.
Holdback and remittance
The holdback is the share of each day's receipts the funder collects. Collection is called remittance: either a percentage is taken from card settlements, or a fixed amount is debited from the bank account on a set schedule. With a percentage, slower sales mean smaller remittances; with a fixed debit, the amount stays the same whatever sales do.
Factor rate and the total collected
Advances are priced with a factor rate, a multiplier applied to the amount advanced. A hypothetical illustration only: an advance of $10,000 with a factor of 1.3 means $13,000 will be collected. The cost is the $3,000 difference, whether collection takes three months or nine. Because there is no interest rate, compare an advance with a loan by the total collected and how fast it is collected, never by the factor alone.
An advance can make sense when card sales are steady and the need is short. Compared with working capital, it usually costs more.
What is stacking?
Stacking is layering a new advance on top of one a funder is still collecting. Each funder takes its own share of sales, so daily cash can shrink quickly. Many advance contracts restrict stacking, and breaking that clause can have consequences. If you already have an advance, tell us at the start.
What can happen in default
Advance contracts define default differently from loans, and the consequences depend on the contract. Read the sections on default, personal guarantees and what the funder may do if collection stops before you sign.
Will an advance appear on a lien search?
Funders often file a UCC-1 financing statement against the business's receivables. That filing is public and other funders and lenders will see it. Ask whether one will be filed and how it will be released when the advance is fully collected.
Which businesses get advance offers
Advances are built around card and bank receipts, so they are offered most to businesses with steady daily sales: shops, restaurants and service counters. Warren County had 515 retail and 282 food service employer establishments in 2023 (U.S. Census Bureau, County Business Patterns 2023).
If one arrives, compare it with a line of credit or working capital before deciding. The advance may still be the right call, but only after you know the total it will collect.
Before you sign an advance
- Get the amount advanced, the total to be collected and the holdback in writing
- Ask whether remittance is a percentage or a fixed debit
- Ask what happens if sales drop
- Read the stacking, default and guarantee sections
- Compare the total collected with a loan's total of payments
The steps of a request explain how offers are compared, and the Bowling Green, KY page and the sector pages show which local businesses tend to run on card receipts.
By Firleaf Lending Group · Updated