Guide

What happens if my sales drop during a merchant cash advance?

If your sales drop during a merchant cash advance, what happens next depends on one thing: how your payments are set. If the agreement takes a percentage of your sales, your payments get smaller when sales fall, and repayment takes longer. If it takes a fixed amount by ACH every business day or every week, the payment stays the same unless the agreement gives you a way to ask for an adjustment and you use it. In both cases, the total you pay back is generally set when you sign.

That's why the best time to answer this question is before you sign, not during a slow month. At Haven, we explain the payment structure, the total repayment amount and the available adjustment process before you sign, so you know what a slow week means for your account before it happens.

Two ways payments can work

A percentage of your sales. Some offers use a percentage of receivables. A share of what comes in goes to the funding provider. When you have a strong week, more goes out. When you have a slow week, less goes out. The payment follows your revenue.

A fixed scheduled payment. Other offers use scheduled ACH payments, the same amount every business day or every week. This is easier to plan around when sales are steady. When sales drop, the payment doesn't drop on its own. It becomes a bigger share of a smaller month.

Fixed-payment offers may come with reconciliation or adjustment terms. These describe how you can ask the funding provider to look at your actual sales and adjust the payment. What those terms say, and how the process works, depends on the provider and the agreement.

A worked example: the same slow month, two structures

Say a business takes a $20,000 advance with a factor rate of 1.30. The total payback is:

$20,000 × 1.30 = $26,000

The business normally brings in about $40,000 a month. Then it has a slow stretch, and sales fall to $30,000 a month.

Offer A: 10% of sales

• In a normal month, 10% of $40,000 is $4,000 going to the provider. At that pace, $26,000 takes about six and a half months.
• In a slow month, 10% of $30,000 is $3,000. The payment shrinks by $1,000.
• If sales stayed at $30,000, repaying $26,000 would take closer to nine months.

The total is still $26,000. It just takes longer to get there.

Offer B: fixed daily ACH, planned over about six months

• $26,000 spread over about six months is roughly $206 every business day, or about $4,333 a month.
• In a normal month, that's close to 11% of $40,000 in sales.
• In a slow month, it's still about $4,333, which is now more than 14% of $30,000.

Unless an adjustment is requested and made under the agreement, the business pays the same amount every day while less money comes in.

Every number on this page is an illustration, not an offer. Real offers depend on the funding provider and your business. Business days are counted at about 21 a month.

Why "it adjusts to your sales" isn't the whole answer

You'll often read that a merchant cash advance "moves with your sales." That's true of some offers, not all of them. Whether yours does depends on what the agreement says, not on the name of the product.

A few things are worth knowing either way:

• A slower payback generally doesn't change the total. The total payback is generally established when the agreement is signed. A percentage structure changes how fast you pay it, not how much.
• A smaller payment isn't always a cheaper deal. It can feel easier in a slow month. Over the full term, you still pay back the same total.
• An adjustment right only helps if you know the process. If the agreement includes reconciliation or adjustment terms, find out before you sign what you'd need to send, who you'd send it to, and how long a review takes.

Questions to ask before you sign

If your sales go up and down, by season or by week, ask these about any offer:

1. Is the payment a percentage of sales, or a fixed scheduled amount?
2. How often do payments come out: every business day, or every week?
3. Are reconciliation or adjustment rights available?
4. If they are, how do I ask for one, and what do I need to provide?
5. What is the total repayment amount, and does it change if repayment takes longer?
6. What fees or deductions apply, and what net amount will reach my account?

Ask for the answers in writing. Whoever won't answer them clearly isn't the one to work with.

If you already have an advance and sales have dropped

Start with your agreement. Look for the section on how payments are set and any reconciliation or adjustment terms, then follow the process it describes with your funding provider. If you're unsure what the agreement means for you, a qualified professional adviser can help you read it.

If you're thinking about taking on more funding while you already have an advance, tell us in the form. It changes which funding providers will look at your file and on what terms, sometimes significantly. Disclosing an existing advance early helps us avoid delays and identify which options may actually be available.

How Haven helps

You tell us where you stand. A few quick questions, then a short call. Bank statements are the starting point. Additional documents or verification may be required depending on the provider and offer.

We bring back what may be available. We take your file to funding providers and come back with any offers they make. We walk you through how each one is priced, how the payments work and what the total comes to.

You decide, or you don't. You see the full terms before anything is signed. If an offer doesn't work for you, you're not required to accept it. We don't chase.

Haven is a commercial-financing broker, not a lender, and does not make credit decisions. Approval, pricing, terms and timing are set by the funding provider. Submitting a form is not an approval or an offer of financing. This page is general information, not financial, legal or tax advice.