Key takeaways
- An MCA is an advance on future sales, not a traditional loan.
- Multiply the amount by the factor rate to see total payback.
- Fast repayment can make the effective cost very high.
Best for
Card-heavy businesses that need speed and understand the total cost.
How it works
A provider buys a portion of future receivables at a discount. Repayment is taken automatically as a percentage of sales or a fixed daily/weekly debit.
Understanding cost
MCAs usually use a 'factor rate' rather than an interest rate. Multiply the advance by the factor rate to find the total payback, then compare that to other options.
Because repayment can be fast, the effective annual cost may be much higher than it first appears.
Pros and cons
Advantages
- Fast decisions
- Repayment can flex with sales
- Credit requirements may be more flexible
Things to weigh
- Often among the most expensive options
- Frequent withdrawals affect cash flow
- Fewer consumer-style protections
Frequently asked questions
How do I calculate the cost of an MCA?
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Multiply the advance by the factor rate. A $50,000 advance at 1.3 means $65,000 total payback. Then consider how quickly it's repaid.
Is an MCA a loan?
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Typically it's structured as a purchase of future receivables, so it may not follow the same rules as a loan.
When does an MCA make sense?
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When speed matters, the opportunity clearly pays for itself, and you've compared lower-cost options first.
This guide is general educational information, not financial, legal, or tax advice. Terms, requirements, and availability vary by lender and your situation.