Guides for owners
Term loan vs. merchant cash advance. The actual math.
MCAs quote a 'factor rate' that looks like an interest rate and isn't. Annualized, the typical advance costs 60–90%. Here's the arithmetic, done honestly, including the rare cases where an MCA makes sense.
The factor rate illusion
Borrow $100,000 at a 1.35 factor and you repay $135,000. That reads like 35% interest. It isn't, for two reasons. First, repayment happens daily over a short window (say nine months), so on an annualized basis you're paying far more than 35%. Second, the $135,000 is fixed the moment you sign: repay in four months instead of nine and your cost doesn't drop a dollar.
Side by side
| Term loan | MCA | |
|---|---|---|
| $100K, stated cost | 12% APR, 24 months | 1.35 factor, ~9 months |
| Total repaid | ~$112,980 | $135,000 |
| Effective APR | 12% | ~75% (varies with sweep speed) |
| Early payoff | Saves remaining interest | Saves $0 |
| Payment rhythm | Monthly, fixed | Daily debit from the account |
The daily debit is the real damage
The headline cost is bad; the cash flow mechanics are worse. A daily sweep hits hardest exactly when revenue dips, which is usually why the money was borrowed in the first place. We see the spiral weekly: a slow month, an advance, a slower month because of the debit, a second advance to cover the first. Restaurants and trucking companies are the most frequent casualties.
When an MCA is actually defensible
Genuinely short-term, genuinely high-return situations where no other capital can arrive in time: a below-cost inventory buy that resells in six weeks, a one-time contract mobilization with payment terms you can see. The test is simple: if the use of funds doesn't return more than ~75% annualized, the advance loses you money by definition.
If you're holding one now
Refinancing an MCA into a monthly term structure is frequently the highest-return financial move available to the business — often worth more to monthly cash flow than a 10% revenue increase. Get your payoff letter (the funder must provide it), and bring it to us. The comparison is free, takes a day, and about a third of the time we tell owners their remaining balance is small enough that refinancing isn't worth it. The other two thirds, it very much is.