Split Funding | MCA Glossary

Definition

A repayment mechanism in which an MCA funder collects its daily holdback directly from the business's card processing batches before the remaining funds are deposited to the business bank account.

Explanation

Split funding — also called a card split or split-processing arrangement — is the mechanism that made the original merchant cash advance product possible. In a split-funding arrangement, the MCA funder interfaces directly with the business's payment processor. When the processor settles each day's card sales, the total batch is automatically divided: the funder's holdback percentage is routed to the funder's account, and the remainder is deposited to the business bank account. This arrangement creates the automatic, revenue-proportional repayment that is theoretically central to the MCA structure. If the business has a slow week and card sales drop by 40%, the funder's daily collection drops by 40% as well. The business retains the same percentage of its revenue regardless of volume. Split funding requires a technical integration between the MCA funder and the business's payment processor. Not all processors support split-funding arrangements, and when a business switches processors, the funder must establish a new split-funding connection. This is why many MCA agreements prohibit changing payment processors without funder consent.

Example

A salon processing $2,500 per day through Square has a 15% split-funding arrangement. Square splits each daily batch: $375 routes to the MCA funder and $2,125 deposits to the salon's bank account. On a slow Tuesday with only $800 in sales, the split is $120 to the funder and $680 to the salon.

Why It Matters

Split funding is the repayment structure most aligned with the theoretical MCA model of proportional revenue sharing. For businesses with variable or seasonal revenue, a split-funding arrangement provides natural cash flow protection during slow periods. If you are offered a choice between split-funding and ACH-based repayment, split-funding is generally preferable for any business with revenue variability.

Frequently asked questions

Can I change my payment processor while repaying an MCA?

Most MCA agreements prohibit changing payment processors without funder consent when a split-funding arrangement is in place. The funder's split-funding connection is tied to your specific processor — switching would disrupt the collection mechanism. If you need to change processors, notify your funder first and work with them to establish a new split-funding arrangement with the new processor. Unauthorized processor changes are typically a default event.