Glossary

What is the holdback rate in a merchant cash advance?

The holdback rate (or retrieval rate) in a merchant cash advance is the fixed percentage of the merchant's daily sales or bank deposits that the funder collects as remittance toward the purchased receivable balance. A 10% holdback means the funder collects 10 cents of every dollar deposited until the full purchased amount is remitted. The holdback rate, combined with average daily deposits, determines the advance's practical repayment timeline.

How the holdback rate works

In a traditional MCA tied to credit card processing, the holdback is collected automatically by the processor — the funder receives its percentage before the merchant receives the remainder. In ACH-based MCAs (now more common), the holdback is implemented as a fixed daily or weekly ACH debit calculated as a percentage of projected daily revenue.

The holdback rate is set at origination based on the merchant's average daily deposits and the desired repayment timeline. A merchant with $10,000 in average daily deposits and a 10% holdback rate remits $1,000 per day. At a $50,000 advance with a 1.3 factor, the merchant owes $65,000 total — which at $1,000/day would take approximately 65 business days.

Holdback rate and reconciliation

In agreements with genuine reconciliation rights, the holdback rate can be adjusted if actual sales fall below the level assumed at origination. A merchant experiencing a revenue downturn can request a reduced daily remittance proportional to actual deposits. This connection between holdback and actual receivables is central to the MCA's characterization as a receivables purchase rather than a fixed-payment loan.

FAQ

Holdback Rate — common questions

What is a typical holdback rate?

Holdback rates for MCA products commonly range from 8% to 20% of daily deposits, though rates outside this range exist. The rate is set based on the advance amount, the merchant's revenue, and the funder's target repayment period. Higher holdback rates mean faster repayment but more cash flow impact on the merchant.

How is the holdback rate different from the factor rate?

The factor rate determines the total amount the merchant owes (advance × factor). The holdback rate determines how quickly that amount is collected — the daily percentage taken from deposits. Both are set at origination and together define the advance's cost and cash flow impact.

Factor rate Reconciliation (MCA) Merchant cash advance (MCA)

The institution around the intelligence

See Hadrian run your case lifecycle — intake to close, every decision audited.

Governance-native case processing for lenders and regulated teams.

Book a live demo