Retrieval rates, as we said, are a fixed percentage of your credit card revenue that goes to your MCA provider to repay your advance.
Your specific retrieval rate (also called a holdback) will depend on factors like your business’s projected revenue and your advance amount. In general, though, you can expect a retrieval rate in the range of 10% to 20% of your daily revenue.
In most cases, your merchant cash advance provider will take their percentage by either providing you with a new credit card reader or helping you program your existing one. Either way, it means that the amount specified by your retrieval rate will automatically go to your MCA provider each day.
Put another way, you don’t get a choice in whether or not you make payments. So make sure your budget can handle that kind of daily payment. Because in some cases, you could end up making payments for quite some time.
Unlike a term loan, repayment on a merchant line of credit doesn’t have a fixed term. Instead, you pay your retrieval rate until you’ve repaid your advance and factor rate fees.
For example, let’s assume you have to pay back $10,000, which includes all fees. The lender sets a retrieval rate of 10% of your daily revenue, which averages around $500. If we apply your retrieval rate to that revenue, you’ll pay about $50 a day. That means you’d end up with a term of 200 days, or a little under seven months, to repay your $10,000.
Usually, the merchant cash advance company will choose a retrieval rate so you repay your advance and factor rate between six months and one year. But again, your repayment depends on your daily revenue, so the actual length will be unpredictable. If your credit card sales sag, you could keep making monthly payments for much longer than you initially expected.
That’s why we suggest you use the worst-case scenario for your planning. Don’t assume you’ll have six great months and pay off your MCA in no time—assume you’ll have low sales and a lengthy repayment term.
That way, you can be pleasantly surprised if you do pay it off quickly, instead of unpleasantly shocked when you don’t.