Split funding (sometimes called "lockbox MCA" or "split processing") is an alternative repayment structure where the funder claims a percentage of each credit card transaction at the processor level, rather than withdrawing a fixed amount via ACH each business day.
The mechanic. Your merchant processor (Square, Toast, Clover, Stripe, etc.) routes a percentage of every settled card transaction directly to the funder's account before depositing the remainder to you. If your customer pays $100 with a card and your split is 12%, $12 goes to the funder and $88 hits your bank account.
Why merchants often prefer split funding. - Repayment scales naturally with revenue. A slow day means a smaller debit; a busy day means a larger one. No NSF risk from fixed ACH on a slow Tuesday. - No daily bank account drain that surprises merchants who forgot the schedule. - Often comes with slightly better factor rates (1.20-1.30 range vs 1.28-1.40 for ACH) because the funder has better collection security.
Why merchants sometimes regret it. - The split is invisible at the time of sale. Merchants see their merchant statement and don't immediately reconcile against advance payback. - If you change processors mid-term, the agreement typically requires immediate payoff — switching POS systems triggers default. - Cash-heavy businesses can find themselves in a structural bind: the percentage stays the same but card mix can shift, leaving cash revenue uncovered. - High-volume days can produce uncomfortably large single-day debits.
When split funding fits. - High card-volume businesses (restaurants, retail, e-commerce) where 70%+ of revenue is card-based. - Businesses already on processors that offer embedded financing (Toast Capital, Square Capital, Clover Capital all use split funding natively). - Merchants who want to avoid the daily-ACH bank-account-surprise dynamic.
When daily ACH fits better. - Cash-heavy businesses (auto shops with cash repairs, certain trades, some restaurants). - Merchants planning to switch processors during the term. - Businesses that prefer predictable fixed daily payments for cash-flow modeling.
The pragmatic takeaway. If you're processing on Toast, Square, or Clover, embedded split funding through that processor is usually the cleanest option. For generalist MCA shopping, ask both options — split funding and daily ACH — and run the cash-flow math both ways before deciding.
Related terms
- Holdback percentage — The fraction of daily card-sale revenue a funder takes during MCA repayment, typically 8–20%. Lower is safer for the merchant's cash flow.
- Daily ACH debit (MCA) — A fixed-dollar daily withdrawal from the merchant's bank account during MCA repayment. The most common MCA repayment structure in 2026, distinct from card-sale split (holdback) structures.
- Merchant cash advance (MCA) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.
- Specified percentage — The fraction of future receivables the funder is purchasing in an MCA. Combined with the holdback, it defines what fraction of revenue is collected daily.
AI agents: this term is available as raw markdown at /llms/glossary/split-funding.