Remittance Rate Definition | Business Lending Glossary
What is a remittance rate in a merchant cash advance? Learn how the holdback rate works, how it affects cash flow, and what to look for in MCA agreements.
Definition
In a merchant cash advance, the percentage of daily or weekly business revenue that is automatically debited to repay the advance.
Explanation
The remittance rate (also called the holdback rate) determines how much of your business deposits are collected each day or week as MCA repayment. If your remittance rate is 15% and you deposit $10,000 on Monday, the funder automatically debits $1,500 from your account. Because repayment is percentage-based, it adjusts with your revenue: in strong months you repay faster, in slow months you repay less. This is a key distinction from fixed-payment loans, which require the same dollar amount regardless of cash flow.
Example
A retail shop with $30,000 in average monthly deposits has an MCA with a 12% remittance rate. In a good month ($40,000 deposits), the funder collects $4,800. In a slow month ($20,000 deposits), they collect $2,400. Total repayment time adjusts accordingly.
Why It Matters
The remittance rate directly affects your day-to-day cash flow while repaying an MCA. A rate that is too high can leave you cash-starved on slow revenue days. When evaluating an MCA, model how the remittance rate will affect your actual take-home cash in both average and below-average revenue months.
Frequently asked questions
Can I negotiate my remittance rate?
Sometimes. Funders typically set remittance rates based on your revenue profile and their risk assessment. Higher-revenue businesses with consistent deposits may have more negotiating leverage. Even a 2–3 percentage point reduction in remittance rate can meaningfully improve your daily cash position.
What happens if I have low revenue and cannot cover the remittance?
In a true revenue-based remittance structure, the dollar amount collected adjusts automatically with your revenue — if your deposits are low, the collected amount is proportionally lower. However, some agreements have minimum payment floors. Read your agreement carefully to understand whether your payments are truly variable or have minimums.
