Holdback
The holdback (also called retrieval rate) is the percentage of a merchant's daily or weekly revenue automatically withheld by the MCA provider to repay the advance — typically ranging from 8% to 25% of gross sales — making MCA repayment self-adjusting to revenue cycles.
Why This Matters
The holdback mechanism is what makes MCA repayment self-correcting. When business is slow, less is withheld; when volume spikes, repayment accelerates. For merchants, this is the key product appeal: repayment matches revenue cycles rather than imposing fixed monthly burden. For funders, the holdback creates predictable cash collection from healthy merchants and built-in flexibility for revenue downturns. The holdback rate is negotiated at origination based on advance size, revenue volume, and risk profile.
Example
Merchant A: $100K monthly revenue, takes a $50K advance at 15% holdback. Daily collection ≈ $100K/30 × 15% = $500/day. At 1.35 factor ($67,500 payback), full repayment in roughly 135 business days. If revenue drops to $70K/month, daily collection drops to $350/day and repayment extends accordingly.
Frequently Asked Questions
Frequently Asked Questions
Can a merchant negotiate their holdback rate?
Yes — at origination. Higher-revenue merchants typically secure lower holdback rates because the absolute dollar collection still exceeds funder targets. Lower holdback means longer payoff but lower daily cash flow burden. Trade-off varies by merchant priorities and funder appetite.
What's the typical MCA holdback range?
8-25% of daily/weekly revenue. First-position deals trend toward the lower end (8-15%). Higher-risk or shorter-term deals trend higher (15-25%). Daily holdback combined across all funded positions should generally not exceed 30-40% of receivables to maintain merchant viability.