How They Work
Merchant Cash Advance Interest Rates

A factor rate answers one question and pretends to answer another. It states the multiple applied to the advance while leaving the time, the fees, and the usable proceeds out of the figure the owner compares.

The useful comparison describes cash in, cash out, and the period between them. Everything else is presentation.

What Reaches the Account

Begin with the deposit that reaches the operating account after deductions. Origination charges, broker compensation, and amounts applied to an earlier balance can reduce the cash available below the figure used to calculate repayment.

Request and retain the itemized disbursement statement and place it beside the pricing summary. Simply identify the difference between the amount described as funding and the money the business may use.

This distinction grows extremely important where the transaction also retires an earlier obligation, though the files we have reviewed form too narrow a base for a general rule. The owner may receive a fraction of the stated advance as new working capital while assuming the full contractual commitment.

What the Factor States

A factor expresses a multiplier used to calculate a specified remittance amount under the agreement. It should not be read as an annual interest percentage, and comparing it with a bank rate without stating the period invites error. Most owners make that comparison and stop there, and the comparison feels complete before it is.

Disclosure regimes for commercial financing are recent creations in several states, and older MCA files contain no annualized measure at all. A factor is a pricing choice presented as a pricing fact. Counsel must compare those files in cash rather than in rates the documents never state.

A fixed charge collected over eight weeks imposes one burden, the same charge collected over eight months imposes another, daily withdrawals reduce the funds available to earn the revenue that must cover them, and a single annualized figure built on assumed sales can conceal all three effects behind a number that looks precise while describing a future no one has observed.

Where receipts set the timing, keep the estimate apart from any contractual deadline. The comparison should state its revenue assumption and show what changes if collections arrive sooner or later. Whether faster collections would have changed the effective burden is a question the documents answer only with assumptions.

The disclosure stated the cost with precision. What the business would pay depended on timing the disclosure never addressed.

The Fixed Fee That Behaves Like a Price

PayPal Working Capital publishes its structure as a business loan with a single fixed fee repaid through a percentage of PayPal sales alongside minimum requirements. Its own terms supply the comparison, and the payment method never converts the loan into a purchase.

Read the fee as a price for the use of money over an uncertain period. A shorter holding period concentrates that price across fewer weeks of benefit. Often we find the disbursement statement tells a different story than the pricing summary.

The fixed fee functions the way a cover charge functions at a restaurant that has already closed its kitchen: the payment is collected at the door regardless of what follows inside. The factor is the price, but the schedule decides what it costs.

Compare and test each figure against the bank record, beginning with the amount received, the collections required, and whether payroll clears in the same week.

Charges Outside the Headline

Review the agreement for costs tied to origination, changes, returned payments, and default. Determine which charges are certain and which arise only after a specified event. Returned payment charges can appear extremely small beside the advance and still alter the economics of a tight month.

A promised early payoff benefit should appear in the written terms, and the owner should not assume that a shorter duration reduces the total where the contract provides otherwise.

And a verbal assurance about early payoff should be checked against the written calculation before it enters the forecast. Any telephone assurance about pricing, even casually given, should be confirmed against the written terms before the owner relies upon it.

Delancey Street offers a free confidential initial review where MCA pricing has become a business debt problem, and an owner can ask whether the account qualifies for settlement assistance. The company acts as a settlement company and coordinates legal questions with independent counsel, since it is not a law firm.

Ask the adviser to ensure every figure in the comparison comes from the signed documents. Counsel should ensure any quoted savings account for the full cost of completing the resolution. The relevant comparison, if we are being precise, sets the obligation that remains against the expense of completing the proposed resolution. Resist the urge to measure a proposed resolution against the original advance rather than the balance now due.

File the payoff statement with the agreement.

Renewals and the Second Price

A renewal can fold an earlier balance into a new transaction while delivering limited additional cash. Obtain the payoff and disbursement figures, then identify which charges survive into the new obligation. A provider may frame the renewal in order to present old debt as new capacity.

The Texas disclosure requirements for covered sales based offers address specified information about existing balances and disbursement. Coverage and exemptions require assessment by counsel, but the distinction between gross financing and new cash deserves a place in any renewal review.

In LG Funding v United Senior Properties, a New York appellate court treated reconciliation and other features as relevant to whether repayment was absolute. The full appellate opinion on absolute repayment shows why a high calculated cost, standing alone, answers no question about enforceability. I have yet to see a renewal disclosure that an owner found clear on the first reading.

The owner decides what to prepay, or to leave outstanding, with the same forecast in view. A narrow focus on the factor misses the schedule that must be met, and rosy sales estimates, however sincerely prepared, cannot soften an obligation that falls due regardless. A charge against the account lands whether or not the forecast allowed for it.

The owner who compares obligations in cash, over stated periods, against verified receipts, makes the decision the documents permit rather than the one the headline invites. That discipline outlasts any single advance, and it governs every claim against future sales the business is asked to sign.