“Static” or “Capped” Reserve

In this scenario, the processor will typically hold 5%-15% of your sales until they have on reserve the equivalent to either (A) one-half of your monthly processing volume, or (B) one month of your processing volume. For example: if you are applying to process $20K/mo, the processing bank may ask for either $10K or $20K to be on reserve, and to obtain this amount via a 5% to 15% holdback (depending on an underwriting review). Since each transaction they allow you to process is in all reality a 6 month loan to you (customers have 6 months to issue a chargeback, i.e., its a 6 month signature loan or liability for them), they are thus covering 1/12th to 1/6th of their total liability against a worst case scenario, which unfortunately does occur more often than you would expect.

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