How Much Does a Merchant Cash Advance Cost?

A merchant cash advance (MCA) does not use an interest rate like a bank loan. Instead, lenders charge a factor rate, which means you know the total cost upfront. The actual cost depends on three things: how much you borrow, the factor rate you qualify for, and whether any fees apply.

How Factor Rates Work

A factor rate is a simple multiplier applied to your advance amount. Common factor rates range from 1.15 to 1.50.

The formula is straightforward:

If you receive $50,000 at a factor rate of 1.30, your total repayment is $65,000. The cost is $15,000 -- you always know this number from day one.

MCA Cost Examples

What Determines Your Factor Rate?

Lenders set your factor rate based on risk. The better your business profile, the lower your rate.

• Monthly revenue: Higher, more consistent revenue leads to better rates. Most lenders want to see at least $10,000 per month.
• Time in business: Businesses open 2 or more years typically qualify for lower factor rates.
• Credit score: MCA approvals are possible with scores as low as 500, but scores above 620 improve pricing.
• Bank statement health: Frequent NSFs, negative days, or unexplained large transfers push rates higher.
• Industry: High-risk industries (restaurants, retail, auto) may see slightly higher rates than professional services.
• Existing balances: Active MCAs or positions with other funders increase perceived risk.

Other Fees to Know About

Beyond the factor rate, some MCA contracts include additional fees. Not every funder charges these, but you should ask upfront:

• Origination fee: A one-time processing charge, typically 1-3% of the advance.
• Administrative fee: Sometimes charged monthly or per draw (more common with lines of credit, not MCAs).
• ACH return fee: Charged if a daily or weekly payment fails due to insufficient funds.
• Early payment discount: Some funders reduce the total owed if you pay off early. Others do not -- read the contract.

How MCA Cost Compares to Other Options

MCAs are more expensive than traditional bank loans and SBA loans. They are typically comparable to or cheaper than unsecured short-term loans from online lenders. The tradeoff is speed and accessibility.

• SBA loan: 6-12% APR, but 2-3 month application process and strict qualifications.
• Bank term loan: 7-20% APR, requires strong credit and 2+ years of financials.
• MCA: Equivalent APR can range from 40% to over 100% depending on repayment speed, but approvals in 24-48 hours with minimal documentation.
• Business credit card: 20-30% APR, limited to credit limit, may not provide enough capital for large needs.

The key question is not just what the rate is, but whether the capital allows you to generate more revenue than the cost. A restaurant that uses a $40,000 advance to renovate and sees a 20% revenue lift may find the MCA cost well worth it.

Is There a Way to Reduce MCA Cost?

Yes. A few strategies can lower what you pay:

• Work with a broker: Brokers submit to multiple funders at once and can negotiate on your behalf. You often get better pricing than going direct.
• Improve your bank statement profile: Three months of clean statements with consistent deposits and no NSFs can move you into a better rate tier.
• Borrow only what you need: Smaller advances relative to your revenue carry lower risk for the lender, which can improve pricing.
• Ask about early payoff discounts: Some funders will knock a portion of remaining fees if you pay off early. Not universal, but worth asking.

What to Ask Before Signing

Before accepting an MCA offer, get clear answers on:

1. What is the total payback amount?
2. What is the daily or weekly payment amount?
3. Is the payment a fixed amount or a percentage of revenue?
4. Are there any fees outside the factor rate?
5. Is there an early payoff discount or is the full amount owed regardless?
6. What happens if a payment is returned (NSF)?