A commercial espresso machine and grinder on a cafe back bench

Working capital product

Repayment that moves with the takings.

A merchant cash advance is repaid as a share of daily card sales rather than on a schedule. Quiet weeks cost less and busy weeks cost more, and the term is whatever the takings make it.

Last reviewed 8 September 2026

Indicative repayment

Weekly

Disclaimer

$1,028/week

$4,453 /month $4,531 total interest

Loan amount $40,000

$5,000 $500,000

Loan term 10 months

6 months 5 years

Indicative rate 24.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

The short version

Five lines that describe the arrangement.

The total repayable is fixed at the start. A factor applied to the advance sets it. It does not grow if repayment takes longer, and it does not shrink if it finishes early.
Repayment is a share of card sales. A percentage is taken from each day’s takings, so a quiet week repays less and a busy week repays more.
The term is not fixed. It is however long the takings need. That is the feature, and it is why the cost cannot be expressed as an annual rate at the outset.
Repaying faster does not cost less. Because the total is fixed, a strong season shortens the term without reducing the amount, which raises the effective annual cost.
Indicative only. Every figure here is illustrative. Actual factors, percentages and terms come from the provider after assessment.

The mechanism

A factor rate, and a holdback percentage.

Two numbers define the arrangement. The factor is applied to the advance to produce the total repayable, so a $40,000 advance at a factor of 1.25 has to return $50,000 regardless of how long that takes. The holdback is the percentage of daily card takings collected toward that total, commonly somewhere between 10% and 20%.

Collection is automatic, taken at the point of settlement, and it happens every trading day. A business turning over $4,000 on cards in a day at a 15% holdback contributes $600 that day and nothing at all on a day it does not trade.

That is the whole of the mechanism. There is no schedule to miss, no arrears in the ordinary sense, and no fixed end date. The arrangement finishes when the agreed total has been collected, which is why the same advance can run for seven months in a strong year and eleven in a weak one.

Advance

A lump sum

Factor

Sets the total repayable

Holdback

The share of daily takings

Finishes

When the total is met

Worked example

A $40,000 advance against a hospitality business.

A cafe with card takings averaging $22,000 a week takes a $40,000 advance at a factor of 1.25, so $50,000 is repayable, with a 15% holdback. At that turnover the holdback returns roughly $3,300 a week, so the advance clears in around fifteen weeks.

That produces a cost of $10,000 on $40,000 across roughly three and a half months. As an annual equivalent that is a large number, considerably larger than the factor makes it look, and the arithmetic is the reason the annual equivalent is rarely quoted.

The same advance in a business where takings drop 40% over winter takes proportionally longer, and the cost in dollars is identical. That is the trade the product offers: a fixed dollar cost and a variable duration, where almost every other facility offers the reverse.

Illustrative figures

Advance: $40,000
Factor: 1.25
Total repayable: $50,000
Holdback: 15% of card takings
Weekly card takings: ~$22,000
Indicative duration: ~15 weeks

Illustrative on stated assumptions and rounded. Not a quote or offer of credit.

The counterintuitive part

A good trading season makes the money more expensive, not less.

Because the total repayable is fixed at the outset, repaying it faster does not reduce it. A business that trades unusually well clears the advance in ten weeks instead of fifteen and pays exactly the same $10,000, which is a materially higher cost for the shorter use of the money. That is the opposite of how every interest-bearing facility behaves, and it is worth understanding before choosing between them, since a business expecting a strong season is choosing the structure that penalises it.

Against the alternatives

How it differs from a scheduled facility.

The differences are structural rather than about price alone, and they point at quite different businesses.

Feature	Merchant cash advance	Short-term loan	Revolving facility
Repayment amount	Varies with takings	Fixed	At the business’s discretion
Term	An outcome	Fixed	Ongoing
Total cost	Fixed at the outset	Fixed at the outset	Depends on usage
Early repayment saves money	No	Ordinarily not	Yes
Behaves in a quiet month	Takes less	Takes the same	Takes only what is drawn
Requires card takings	Yes	No	No

The fifth row is the genuine advantage and the reason the product exists. For a business whose income swings with weather, season or tourism, a repayment that falls in a bad week is worth real money in avoided stress.

Where it fits

Four business shapes it suits.

The common requirement is that a large and consistent share of income arrives through a card terminal, because that is what the repayment is taken from.

Hospitality and retail

High card volume, daily takings and seasonal swings. This is the profile the product was designed around and where the self-adjusting repayment does the most work.

Weather-dependent trading

A business where a wet fortnight halves the takings can carry a facility that halves with them, which no scheduled loan will do.

A fitout or refresh

A defined spend that lifts takings, repaid out of the takings it lifts. The alignment between the funding and the return is unusually direct.

A stock build before a peak

Buying ahead of a season and repaying through it, so the heaviest repayment falls in the weeks with the most cash coming in.

The trade

What it gives and what it costs.

What it gives

A repayment that falls automatically in a quiet week
No fixed schedule to miss, and no arrears in the ordinary sense
A total cost known in dollars before the advance is taken
Availability to businesses with card takings but little else to offer a lender
Speed, since the assessment works largely from terminal history

What it costs

A high cost per dollar, and one the factor convention makes hard to see
No saving from repaying early, since the total is fixed
A daily reduction in takings that has to be absorbed by the trading account
Dependence on card volume, so a shift to bank transfers changes the arrangement
A structure that is difficult to compare against interest-bearing facilities

The process

What an application involves.

Generalised rather than specific to any provider.

01
Terminal history
Merchant statements showing card volume over recent months. This is the core of the assessment, because the takings are both the repayment source and the evidence of trading.
Documents commonly required
- Merchant terminal statements
- Bank statements
02
Business details
Entity and director details, existing facilities, and how long the business has been trading through the terminal. A recently changed terminal provider can complicate this, since the history is with the previous one.
Documents commonly required
- Entity and director details
- Existing facility details
03
Factor and holdback
The provider sets the total repayable and the percentage taken daily. Both are worth negotiating, because the holdback determines how much cash the business keeps each day and the factor determines what the whole thing costs.
04
Documentation and advance
The agreement is executed and the advance is made. Collection begins with the next day’s settlement, so the arrangement starts affecting the trading account immediately.

The holdback percentage is the number most worth attention. A high holdback clears the advance faster and takes more out of every trading day, and a business that agrees to one it cannot comfortably absorb has created a cash-flow problem while solving one.

When it goes wrong

Three situations to see coming.

The holdback is set too high

A large percentage of daily takings leaves the account before wages, stock and rent are covered, so the business is short every week even though the arrangement is performing exactly as agreed.

What happens:A funding arrangement that creates the shortfall it was taken out to fix.

Card volume falls

A change in how customers pay, a terminal outage, or a quieter season reduces the collection rate. The arrangement stretches, which is the intended behaviour, and the cost stays the same while the money is used for longer.

What happens:A cheaper effective cost for the business, and a longer commitment than planned, which matters if a second facility is wanted.

A second advance is stacked on the first

Taking a further advance while one is running means two holdbacks against the same takings, and the combined share leaving daily can become unmanageable quickly.

What happens:The most common serious failure with this product, and one that is entirely visible in advance by adding the two percentages together.

The third of these is worth a hard rule rather than a judgment. Two holdbacks against one terminal is a position very few businesses can trade through, and the arithmetic takes ten seconds to check.

The honest limit

What the factor rate hides, and why it matters.

A factor of 1.25 sounds moderate. Expressed as a cost it is a quarter of the advance, and expressed as an annual equivalent over a four-month duration it is several times that. None of those numbers is wrong, and they describe the same arrangement, which is why the one used in a comparison matters so much.

The defensible way to evaluate it is in dollars against what the money does. A $10,000 cost to fund a fitout that lifts weekly takings by $2,000 pays for itself in a season, and the annual-equivalent figure is a distraction. A $10,000 cost to cover a general shortfall is $10,000 spent on nothing, whatever it is called.

The comparison that does matter is against the other facilities available to that business. Where a receivables facility or a term loan is genuinely available, it will ordinarily cost less. Where the business trades on cards and has nothing else to offer, this is a real product for a real gap, and the fixed dollar cost at least has the merit of being unambiguous.

For comparison

What a scheduled facility of the same size costs.

A merchant cash advance has no rate, so this shows the equivalent scheduled facility instead. Comparing the total repayable under each is the arithmetic worth doing. Indicative only, and not a quote or offer of credit.

Indicative repayment

Weekly

Disclaimer

$1,028/week

$4,453 /month $4,531 total interest

Loan amount $40,000

$5,000 $500,000

Loan term 10 months

6 months 5 years

Indicative rate 24.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

References

Sources

Commerce Commission
The regulator whose guidance covers conduct and disclosure in business finance.
Financial Service Providers Register
Where a New Zealand provider’s registration can be confirmed before an application is made.
Fair Trading Act 1986
The statute behind the prohibition on misleading representations about a financial product’s cost.
Ministry of Business, Innovation and Employment
Context for the wider regulatory framework covering business finance.
Financial Markets Authority, financial advice
Backs the distinction between general information of this kind and regulated financial advice.

FAQ

Merchant cash advance in New Zealand, questions answered

What is a merchant cash advance?

A lump sum advanced against future card takings, repaid by collecting an agreed percentage of each day’s card sales until a fixed total has been recovered. There is no interest rate and no fixed term.

What is a factor rate?

A multiplier applied to the advance to set the total repayable. A factor of 1.25 on $40,000 means $50,000 has to be collected. It is a total rather than an annual rate, and converting between the two requires knowing how long collection takes.

What is the holdback?

The percentage of daily card takings collected toward the total, commonly between 10% and 20%. It determines how much cash the business keeps each trading day, which makes it the number most worth negotiating.

How long does it take to repay?

However long the takings need. That is the defining feature: the duration flexes with trading while the total stays fixed, which is the reverse of a scheduled facility.

Does repaying early save money?

No. The total repayable is set at the outset, so a strong season shortens the duration without reducing the amount. That raises the effective annual cost, which is worth knowing before choosing this over an interest-bearing facility.

What happens in a quiet week?

Less is collected, because the collection is a percentage of what comes through the terminal. Nothing is missed and nothing is in arrears, which is the genuine advantage for a seasonal or weather-dependent business.

Is it a loan?

It is structured as a purchase of future receivables rather than as a loan, which is why the language differs. What matters commercially is the total repayable, the daily collection and what the arrangement does to cash flow, and those are the same questions either way.

What does it cost compared with other options?

Ordinarily more per dollar than a term loan or a receivables facility. What it buys is a repayment that self-adjusts and availability to businesses with card takings but little else to offer, and whether that is worth the premium depends on the business.

Can two advances run at once?

Some providers permit it and it is the most common way this product causes serious harm. Two holdbacks against one terminal means a large combined share of takings leaving every day, and the arithmetic is worth doing before rather than after.

What if card volume drops permanently?

Collection slows and the arrangement runs longer. Where customers move to bank transfers the repayment source shrinks, and that is a conversation to have with the provider early rather than a situation to let develop.

Who does it suit?

Businesses with high, consistent card volume and swings in trading, which in practice means hospitality, retail and tourism. A business that invoices rather than takes card payments should be looking at receivables funding instead.

Is this page financial advice?

No. It describes how a product works in general terms. This site is not a lender, a broker or a registered financial adviser, and whether an advance suits a particular business depends on facts a website cannot see.