Merchant cash advances are sold on speed and simplicity. What they're not sold on is what they actually cost — because if you knew that upfront, most businesses wouldn't take them.
How MCAs Are Priced
MCAs use factor rates instead of interest rates. A factor rate of 1.35 on a $100,000 advance means you repay $135,000. Sounds manageable — until you understand the timeframe.
If you repay $135,000 on a $100,000 advance over 6 months, your effective APR is approximately 70–90%. Over 3 months, it can exceed 150%.
The Daily Repayment Problem
MCAs are repaid daily or weekly via automatic sweeps from your bank account. This constant drain on cash flow can force businesses into a cycle — needing another advance to cover the payments from the last one.
How It Compares to a Bank Line of Credit
A $200,000 bank line of credit at 9% costs approximately $18,000 per year in interest — and only on what you draw. The same facility via MCA at 1.40 factor over 8 months costs $80,000. The difference is $62,000 staying in your business.
When Does It Make Sense?
MCAs serve a purpose for businesses that genuinely cannot qualify for bank financing and need immediate capital. But for businesses that can qualify — or can be prepared to qualify — paying MCA rates is one of the most expensive financial decisions a business can make.
We've helped clients refinance MCA stacks into bank lines of credit, immediately improving their monthly cash flow by tens of thousands of dollars.
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