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How it is calculated
| Daily revenue | Monthly revenue ÷ 21 business days. Deposits do not arrive evenly, so this is an average rather than a schedule. |
|---|---|
| Daily remittance | Daily revenue × holdback percentage. Typically 8–20% of receipts. |
| Time to repay | Total payback ÷ daily remittance, in business days. Divide by 21 for calendar months. |
| Estimated APR | The same IRR solve as the factor rate calculator, run against the derived term. |
Where it stops being reliable
- Real remittance is a percentage of actual daily receipts, not of an average. A merchant with lumpy deposits will see payments that swing well either side of this figure.
- Many agreements debit a fixed daily amount and reconcile periodically rather than taking a true percentage. Whether reconciliation actually happens is a question worth asking the funder, and increasingly one courts ask too.
- This assumes revenue holds. The point of a holdback is that it does not have to.
Questions
What is a typical MCA holdback percentage?
Usually 8% to 20% of daily receipts. Lower holdbacks stretch the term and are easier on the merchant’s cash flow; higher ones shorten it and raise the effective annualised cost, because the same dollar cost is earned over less time.
What happens to the term if revenue drops?
On a genuine holdback, the term extends and the daily payment falls with the receipts. That is what a reconciliation provision is for, and its presence is one of the three factors New York courts weigh when deciding whether an advance is really a loan.
Is a fixed daily debit the same as a holdback?
No, and the difference matters. A fixed debit with a reconciliation clause the funder honours behaves like a holdback. One where reconciliation is never actually performed looks, to a court, like a loan with a fixed repayment schedule — which is the argument that has cost funders judgments.