A merchant cash advance is collected as a share of an Alice, TX motel's card sales: each day, a set percentage of the front-desk card batches goes to the provider until the agreed total has been collected. The amount collected each day moves with the batches; the total does not. This article follows one invented advance day by day.
An invented $12,580 advance at a 1.24 factor is collected as 11% of a motel's card batches until $15,599.20 has been collected, a cost of $3,019.20. At an invented $1,745 of card sales a day it takes 82 days of batches. A working capital loan or a credit line may cost less when the motel's card sales are steady enough to carry a fixed payment.
How a merchant cash advance works at an Alice, TX motel: the provider buys future card sales
A merchant cash advance is not a loan, and nothing is lent to the motel: the provider pays a lump sum now and buys a fixed dollar amount of the motel's future card sales in return. Two numbers in the agreement do the work: the factor sets the total to be collected (the advance times the factor), and the holdback sets the share of each day's card batches that goes toward that total. There is no interest rate and no fixed end date; the advance ends when the total has been collected.
A motel's card sales come in at the front desk, as guests check in or check out. Bookings paid through an outside booking channel may settle on that channel's schedule rather than in the front-desk batch, so the agreement has to say which deposits count toward the holdback.
County Business Patterns counted 52 paid employees and $977,000 of annual payroll at traveler accommodation establishments (NAICS 7211, which includes hotels and motels) in Jim Wells County, TX in 2023.
One invented week of front-desk card batches at an 11% holdback
Illustration only, invented figures: the motel takes an advance of $12,580 at a 1.24 factor, so $15,599.20 is to be collected, at a holdback of 11% of each day's card batches. The table shows one invented week.
| Day | Card batch | Collected at 11% |
|---|---|---|
| Monday | $1,420 | $156.20 |
| Tuesday | $1,365 | $150.15 |
| Wednesday | $1,510 | $166.10 |
| Thursday | $1,690 | $185.90 |
| Friday | $2,240 | $246.40 |
| Saturday | $2,385 | $262.35 |
| Sunday | $1,605 | $176.55 |
| Week | $12,215 | $1,343.65 |
In this invented example, the largest batch (Saturday, $2,385) sends $262.35 to the provider and the smallest (Tuesday, $1,365) sends $150.15. Over the invented week the batches total $12,215 and $1,343.65 is collected; 89% of every batch stays with the motel.
The amount collected against the amount advanced, worked through for a Jim Wells County, TX motel
In this invented example, the cost of the advance is the gap between the $15,599.20 collected and the $12,580 advanced: $3,019.20. That dollar figure is the same whether the batches run high or low; only the number of days changes.
At the invented average of $1,745 of card sales a day, 11% is $191.95 a day, and $15,599.20 takes 82 days of batches to collect in this invented example (81.27 rounded up to the next whole day).
For a motel, two questions follow from that. How many days of batches does the advance take at the motel's own card sales, and is that share of each day's takings affordable for the whole stretch? The cost per month of use also rises as the days fall: the same invented $3,019.20 collected over fewer days is a costlier advance.
Where fixed monthly payments may suit a motel better than a share of card sales
A share of card sales bends with the batches, which is its appeal. Fixed payments may still suit a motel better in these cases:
- Card sales that hold steady from week to week, so a fixed monthly payment does not crowd any one week.
- A one-time bill sized in months, where a working capital loan on a fixed schedule shows the total cost before signing.
- A short gap, such as a payroll before a weekend of bookings settles, that a credit line draw can cover for days rather than months.
- Front-desk computers or other equipment with a life of several years, which can go on equipment terms.
The merchant cash advance page works through two factors, two holdbacks and an offer collected as a set amount each business day; this article stays with how the motel's batches pay the advance down.
By Southmoor Business Funding · Updated
