Two offer sheets for the same $40,000 advance. Same 1.22 factor, same $48,800 payback. One repays $2,440 every week for 20 weeks. The other takes 12 percent of your card sales until the balance is gone. Same money, same cost, completely different six months.
Which one do you sign? Depends how you get paid - that is the whole answer, and the rest of this is me showing the work. Most owners take the fixed debit without thinking, because the number sits still and a slow month feels theoretical in the week the wire lands. Sometimes that is right. Sometimes it is exactly wrong for how your money actually shows up. No merchant-moving news broke this week, so this Monday goes to a choice that sits in almost every advance contract and rarely gets made on purpose.
Same payback, different calendar
The fixed debit is simple. $2,440 comes out every week, 20 weeks, done. Sales spike, sales crater, the debit does not care. You know the payoff date the day you sign, and that certainty is a real thing to want.
The holdback runs off your sales instead of the calendar. Your processor routes 12 percent of each card settlement to the funder until the $48,800 has moved. String together $25,000 card weeks and you are paying about $3,000 a week and clear in roughly 16 weeks. Hit a soft stretch at $14,000 and the payment drops to $1,680 on its own, no phone call, no paperwork needed! The term just stretches, in that case toward 29 weeks.
Here is the part people miss: speed does not change cost. The factor was locked at signing, and if that mechanism is fuzzy, factor rates explained walks through it. Finishing in 16 weeks does not earn a discount unless an early-payoff clause is written into the contract. What flexes is when the money leaves. The how-much never moves.
Which calendar fits which business
The percentage structure earns its keep when a few things are true:
- Cards are most of your revenue. The holdback rides the processor, so check, ACH, and invoice money is invisible to it.
- Your year has a real low season. A debit sized against October has to clear in February too, while a percentage shrinks with the month on its own.
- Week-to-week swings are big enough that one fixed number would sit heavy on your bad weeks.
- You care more about the payment breathing than about circling a payoff date on the calendar.
A restaurant or a retail shop running most of its sales through the terminal with a dead January is the textbook fit. Seasonal outdoor trades too. I wrote about how seasonal statements read on the funding side, and the same logic applies here.
Now flip it. A contractor waiting on draws gets paid by check and wire, so a card holdback has almost nothing to grab. Useless structure for that file. Flat, predictable deposits point the same way: if every week looks like the last one, the flex is worth nothing and the known payoff date is worth a lot. Take the fixed debit and circle the date.
One honest catch on the holdback. It flexes up as well as down. Your best month is your biggest payment month, so the money leaves fastest exactly when you are flush and tempted to spend. If December cash is what usually carries you through a thin first quarter, a percentage structure quietly front-loads the payoff into the season you wanted the cushion.
The check to run before you sign
Ten minutes, three numbers:
- Pull the last three months of card settlement reports and work out your average week.
- Find the worst four-week stretch of the past 12 months and turn it into a weekly figure.
- Multiply the offered holdback percentage by that worst-stretch week, then set the proposed fixed debit next to the same number.
Whichever payment your worst stretch can carry without the account going negative, that is the structure to take. If both clear comfortably, take the fixed debit and put the date on the calendar. If the fixed number only clears in your good months, take the percentage, or take less money. The offer sheet math is built on your average week. The decision should be built on your worst one, so pull that stretch before you sign anything.