How does 'split withholding' work in merchant cash advances?

The discount rate or fee charged to the business can vary drastically from provider to provider and greatly exceed the in Annual Percentage Rate (APR) charged for traditional business loans and SBA loans. Providers typically quote the interest rate on a monthly basis which would be between 5% to 17%. This monthly rate is then charged to the amount of funding that is outstanding to the business.

The collection of the funds may vary as well and providers may collect their share on a daily, weekly or monthly basis. There are typically three repayment methods used by advance providers which are outlined as follows:

  1. Split Withholding is the most common where the credit card company will split the sales between the business and finance company per an agreed portion.

  2. Lock Box or Trust Bank Account Withholding is where all credit card sales are deposited into a bank account controlled by the MCA provider and then a portion is forwarded on to the business after an agreed amount plus fees go to the provider.

  3. ACH Withholding is where the finance company receives credit card processing information and deducts its portion directly from the business checking account via ACH.