Understanding MCA costs requires looking beyond the factor rate:
Step 1: Calculate Total Cost Advance × Factor Rate = Total Payback Total Payback - Advance = Cost
Example: $100,000 × 1.35 = $135,000 total $135,000 - $100,000 = $35,000 cost
Step 2: Estimate Payback Period Based on your holdback rate and daily sales:
- ●Daily sales: $3,000
- ●Holdback: 15%
- ●Daily payment: $450
- ●Days to payoff: $135,000 ÷ $450 = 300 days (~10 months)
Step 3: Calculate Effective APR (Cost ÷ Advance) × (365 ÷ Days) × 100
$35,000 ÷ $100,000 × (365 ÷ 300) × 100 = 42.6% APR
What Adds to True Cost:
- ●Origination fees (1-3% sometimes)
- ●ACH fees ($10-30/transaction adds up)
- ●Early payoff (no discount = higher effective rate)
- ●Stacking fees (second MCA usually higher rate)
Cost by Factor Rate:
| Factor | 6 mo APR | 9 mo APR | 12 mo APR |
|---|---|---|---|
| 1.15 | ~30% | ~20% | ~15% |
| 1.25 | ~50% | ~33% | ~25% |
| 1.35 | ~70% | ~47% | ~35% |
| 1.45 | ~90% | ~60% | ~45% |
Is It Worth It? Ask: Does the ROI on this capital exceed the cost?
- ●Inventory at 50% margin: $100K inventory = $50K profit → $35K MCA cost = $15K net gain ✓
- ●Emergency repair to stay open: Staying open > MCA cost ✓
- ●No clear ROI: Probably not worth it ✗