Brookharbor Lenders in Charleston, West Virginia passes merchant cash advance requests from Kanawha County card-heavy businesses to providers. In law and in practice, the advance is a purchase of future receivables and not a loan. This page explains holdbacks, factor rates and how to compare an advance with a loan.
At a glance
- Restaurants
Restaurants and other eating places, Kanawha County, WV: 347 employer establishments (CBP 2023)
- Beauty salons
Beauty salons, Kanawha County, WV: 26 employer establishments (CBP 2023)
- Drinking places
Drinking places (alcoholic beverages), Kanawha County, WV: 24 employer establishments (CBP 2023)
Revenue-Based Financing vs. a Merchant Cash Advance for a Charleston, WV Restaurant
A Charleston, WV restaurant that takes most of its sales by card may be offered two things that sound alike. A merchant cash advance gives a lump sum for a fixed share of future card sales, collected daily from the processor. Revenue-based financing, as the term is usually used, provides money that is paid back as a percentage of total revenue, often monthly, sometimes with a cap.
In both, the amount collected each period moves with sales. The differences are in the legal form, how collection works and what happens if sales fall. Read the agreement itself: two products with the same name from different providers can work differently.
With 347 employer establishments in 2023, restaurants and other eating places topped the four-digit industry list for Kanawha County, WV (County Business Patterns).
Merchant Cash Advance vs. Revenue-Based Financing: Fixed Holdback or Fixed Payment?
Many advances use a fixed holdback: a set percentage of each day's card sales goes to the provider. On a busy day the provider collects more; on a slow day, less. The total to be collected does not change, only how long collection takes.
Some advances and some revenue-based products use a fixed daily or weekly debit instead, with a reconciliation if sales drop. A fixed debit behaves more like a loan payment in a slow week, because the same amount leaves the account regardless of sales. Ask which method the offer uses and how to request a reconciliation.
Revenue-Based Financing Companies and What They Ask a Kanawha County, WV Salon
Beauty salons with employees numbered 26 in Kanawha County, WV in 2023 (County Business Patterns), and a salon with steady card sales can expect providers of advances and revenue-based products to ask about the same things: several months of card-processing statements, business bank statements, how long the salon has operated, and whether any other advance is already being collected.
A provider that does not ask about existing advances is worth questioning. Taking a second advance while the first is still being collected, sometimes called stacking, can leave a large share of each day's sales going out before the salon pays its own bills.
Is a Merchant Cash Advance Good for a Restaurant With Steady Weekend Sales?
Whether an advance is a good fit depends on the cost in dollars, the use of the money and the strength of sales. A restaurant with steady weekend sales has predictable card volume, which makes the collection period more predictable, but predictability does not make the cost lower.
An advance can suit a short, specific need when the expected return clearly exceeds the cost, such as stock for a large catering order that has already been booked. It is a poor fit for covering a lasting drop in sales, because the holdback reduces the cash available in exactly the weeks the business is short.
Before signing, ask for the total amount to be collected, convert it to dollars of cost, and compare it with a working capital loan or a line of credit for the same amount.
An Invented Factor-Rate Advance Compared With a Term Loan of the Same Size
Illustration only, invented figures: a restaurant is offered a $30,000 advance priced with an invented factor of 1.35, so $40,500 will be collected. The invented holdback is 12% of card sales, and the restaurant averages $2,500 a day in card sales.
In this invented case the provider collects about $300 a day, and collection takes about 135 days of card sales; the advance costs $10,500 (our arithmetic). For comparison, an invented 12-month term loan of $30,000 at an invented annual rate of 15% has payments of about $2,707.75 a month and costs about $2,493 in total.
The advance is collected in months while the loan runs a full year, so the two do not line up exactly, but the dollar gap between the two costs is the first thing to look at.
Card Statements and Existing Advances a Provider Looks At First
- Card-processing statements for the recent months the provider names.
- Business bank statements, which show deposits other than card sales.
- Any existing advance agreements and their remaining balances.
- The business's time in operation and ownership details.
Brookharbor passes advance requests to providers in the same way it passes loan requests to funding partners: the provider reviews and decides. More on the comparison is in the article on whether an advance is a loan.
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