Understanding Business Loan Payment Structures
How you repay your business funding significantly impacts your cash flow, total cost, and financial flexibility. Different payment structures serve different business needs—understanding your options helps you choose the right fit.
Overview of Payment Structures
Payment Structure Summary
| Structure | Payment Timing | Payment Amount | Best For |
|---|---|---|---|
| Daily ACH | Every business day | Fixed | MCA, short-term |
| Weekly ACH | Every week | Fixed | Online loans |
| Monthly | Once per month | Fixed | Term loans, SBA |
| Split Withholding | Daily from card sales | Variable | MCA |
| Interest-Only | Monthly | Interest only | LOC, some loans |
| Revenue-Based | Monthly | Variable % | Revenue-based financing |
Daily Payment Structures
Fixed Daily ACH
A set amount debited from your bank account every business day.
How It Works:
- ●Same amount withdrawn Monday-Friday
- ●Typically 20-22 business days per month
- ●Amount based on expected repayment term
Example:
- ●Funding: $50,000
- ●Total Repayment: $65,000
- ●Term: 6 months (~130 business days)
- ●Daily Payment: $65,000 ÷ 130 = $500/day
Pros:
| Advantage | Why It Matters |
|---|---|
| Predictable | Know exact daily impact |
| Faster payoff | Frequent payments = faster completion |
| No missed payments | Automatic debit |
Cons:
| Disadvantage | Why It Matters |
|---|---|
| Cash flow impact | Daily drain on account |
| Must maintain balance | Need consistent deposits |
| Less flexibility | Fixed regardless of sales |
Split Withholding (True MCA)
A percentage of daily credit card sales automatically remitted.
How It Works:
- ●Percentage set at origination (e.g., 15%)
- ●Payment varies with card sales
- ●Higher sales = higher payment = faster payoff
- ●Lower sales = lower payment = longer term
Example:
- ●Advance: $50,000
- ●Factor Rate: 1.30
- ●Total Owed: $65,000
- ●Holdback: 15% of daily card sales
| Daily Card Sales | Payment | Remaining |
|---|---|---|
| $3,000 | $450 | $64,550 |
| $2,000 | $300 | $64,250 |
| $4,500 | $675 | $63,575 |
Pros:
| Advantage | Why It Matters |
|---|---|
| Adjusts with revenue | Lower payment on slow days |
| Never exceeds cash flow | Payment is percentage of sales |
| True variable payment | Flexible with business cycles |
Cons:
| Disadvantage | Why It Matters |
|---|---|
| Unpredictable end date | Hard to budget precisely |
| May extend longer than planned | If sales drop significantly |
| Less control | Can't choose payment amount |
Weekly Payment Structures
Fixed Weekly ACH
Common for short-term and online term loans.
How It Works:
- ●One debit per week (usually Monday or Friday)
- ●Fixed amount throughout loan term
- ●Approximately 4-5 payments per month
Example:
- ●Loan: $100,000
- ●Weekly Payment: $3,200
- ●Term: 12 months (52 weeks)
- ●Total Repayment: ~$166,400
Pros:
- ●Less frequent than daily (better cash flow management)
- ●Still relatively fast payoff
- ●Predictable weekly budget impact
Cons:
- ●Larger individual payments than daily
- ●Must ensure balance every week
- ●Less common, fewer options
Monthly Payment Structures
Fixed Monthly (Fully Amortizing)
Standard for traditional loans—same payment each month covering principal and interest.
How It Works:
- ●Equal monthly payments
- ●Each payment includes interest + principal
- ●Early payments are more interest, later more principal
- ●Balance reaches zero at term end
Example (5-Year Term Loan):
- ●Principal: $100,000
- ●Interest Rate: 10% APR
- ●Monthly Payment: $2,125
| Month | Payment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $2,125 | $833 | $1,292 | $98,708 |
| 12 | $2,125 | $761 | $1,364 | $86,044 |
| 36 | $2,125 | $504 | $1,621 | $58,917 |
| 60 | $2,125 | $18 | $2,107 | $0 |
Pros:
| Advantage | Why It Matters |
|---|---|
| Most predictable | Same payment every month |
| Easier budgeting | Known fixed cost |
| Build equity | Principal reduces with each payment |
| Early payoff saves money | Less interest on shorter term |
Cons:
| Disadvantage | Why It Matters |
|---|---|
| Larger payments | Monthly vs. daily/weekly |
| Less frequent | One chance per month |
| Prepayment penalties | Some loans charge for early payoff |
Interest-Only Payments
Pay only interest for a period, then begin principal repayment.
How It Works:
- ●Phase 1: Interest-only payments
- ●Phase 2: Full amortization (or balloon)
- ●Lower initial payments, higher later
Example:
- ●Loan: $100,000
- ●Rate: 8%
- ●Interest-only Period: 12 months
- ●Interest-only Payment: $667/month
- ●After I/O Period: Full amortization begins
Common Uses:
- ●Construction loans (during build phase)
- ●Lines of credit (draw period)
- ●Bridge financing
- ●Seasonal businesses
Revenue-Based Payment Structures
Fixed Percentage of Revenue
A set percentage of monthly revenue goes toward repayment.
How It Works:
- ●Agreement to pay X% of monthly revenue
- ●Payment adjusts with revenue
- ●Continue until fixed multiple is repaid
- ●No set end date
Example:
- ●Funding: $100,000
- ●Multiple: 1.35x (repay $135,000)
- ●Revenue Share: 5% of monthly revenue
| Monthly Revenue | Payment | Cumulative |
|---|---|---|
| $200,000 | $10,000 | $10,000 |
| $180,000 | $9,000 | $19,000 |
| $250,000 | $12,500 | $31,500 |
Pros:
- ●Payment scales with revenue
- ●Won't exceed cash flow capacity
- ●Flexibility during slow periods
Cons:
- ●Variable end date
- ●May take longer than expected
- ●Higher total cost than fixed-rate loans
Choosing the Right Payment Structure
Decision Framework
| If You Need... | Choose... |
|---|---|
| Maximum predictability | Monthly fixed |
| Flexibility with sales | Split withholding or revenue-based |
| Fastest payoff | Daily payments |
| Lowest payments initially | Interest-only or revenue-based |
| Traditional structure | Monthly term loan |
Match Structure to Business Type
| Business Type | Recommended Structure |
|---|---|
| Seasonal business | Revenue-based or LOC |
| Steady revenue | Monthly fixed |
| High card sales | Split withholding MCA |
| Unpredictable cash flow | Revenue-based |
| Strong, stable business | Traditional monthly |
Cash Flow Impact Analysis
Daily vs. Monthly Example ($60,000 funding, $75,000 repayment over 6 months):
| Structure | Payment | Frequency | Cash Flow Impact |
|---|---|---|---|
| Daily | ~$577 | 20-22x/month | ~$12,500/month |
| Weekly | ~$2,885 | 4x/month | ~$12,500/month |
| Monthly | ~$12,500 | 1x/month | $12,500/month |
Total impact similar—but timing differs significantly.
Understanding Payment Calculations
Key Formulas
Monthly Payment (Amortizing):
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Where: P = Principal, r = monthly rate, n = number of payments
Total Cost (Factor Rate):
Total = Principal × Factor Rate
Daily Payment (Fixed):
Daily = Total Repayment ÷ Business Days in Term
Summary: Payment Structure Quick Guide
| Structure | Best For | Key Feature |
|---|---|---|
| Daily ACH | Fast funding needs | Frequent, small payments |
| Split/Holdback | Card-based businesses | Adjusts with sales |
| Weekly | Balance of speed/flexibility | Moderate frequency |
| Monthly Fixed | Stable businesses | Predictable budgeting |
| Interest-Only | Project-based needs | Lower initial payments |
| Revenue-Based | Variable revenue | Payments scale with income |
Understanding these structures helps you choose funding that fits your cash flow patterns and business model.