As a former small business lender with 16 years in commercial finance, I’ve seen merchants pay 40–200% effective APRs on cash advances without realizing it. Why? MCA costs hide in plain sight behind factor rates and daily holdbacks. This guide – paired with our free MCA Calculator – will help you:
- Decode confusing funding offers.
- Avoid predatory lending traps.
- Calculate exactly what you’ll repay.
“Starting Gate Financial’s proprietary MCA Calculator reveals your true cost in seconds – no signup required.”
Use Our MCA Calculator Now
Why MCA Costs Trick Even Savvy Business Owners
The Illusion: “Borrow $50,000 at 1.25 factor rate” sounds simple.
The Reality: That “1.25” means $62,500 repayment PLUS:
- Daily % deductions from sales (10–20%)
- Short terms (3–18 months)
- Compressed cash flow pain
Key Insight:
The faster you repay, the higher your effective APR. A 6-month $50k advance at 1.25 factor = 65% APR. Same advance over 12 months = 42% APR.
3 Cost Components You MUST Calculate
1. Factor Rate → Total Repayment
Formula:
Advance Amount × Factor Rate = Total Payback
- Example: $20,000 × 1.32 = $26,400
Red Flag: Rates above 1.35 often signal predatory terms.
2. Holdback % → Daily Cash Flow Impact
How it works:
Lender takes 10–20% of daily credit card sales until repaid.
- Example: 15% holdback on $2,000 daily sales = $300/day
Calculator Power:
Our MCA Calculator shows how this strangles your working capital.
3. Term Length → Effective APR
The Silent Killer:
Shorter terms dramatically increase true interest costs.
| Term | Factor Rate | Effective APR |
| 6 mo | 1.25 | 65% |
| 12 mo | 1.25 | 42% |
| 18 mo | 1.25 | 30% |
Step-by-Step: Using Our MCA Calculator
Illustrated with real bakery example:
- Enter Advance Amount: $35,000 (for oven upgrades)
- Input Factor Rate: 1.28
- Set Holdback %: 12% (industry average)
- Estimate Daily Sales: $1,800
Calculator Outputs:
▸ Total Repayment: $44,800
▸ Daily Payment: $216
▸ Effective APR: 48%
▸ Breakeven Day: 147 (when profit resumes)
When an MCA Makes Sense (and When to Run)
SMART USE CASES:
- Emergency repairs (broken refrigeration)
- 60-day inventory flips (holiday merchandise)
- Bridging delayed SBA loans
DANGER ZONES:
- Paying existing MCAs (stacking = debt spiral)
- Non-revenue-generating expenses (back taxes)
- Businesses with <15% profit margins
Alternatives to High-Cost MCAs
- Short-Term Business Loans
- Lower APR (15–35%)
- Fixed daily payments
- Compare options
- Revenue-Based Financing
- Repays only when you earn
- No personal guarantee
- How it works
- Equipment Financing
- Rates from 8% APR
- Collateralized by machinery
- Explore
*”Starting Gate Financial offers merchant-friendly alternatives with APRs under 30% – apply without impacting your credit score.”*
3 MCA Horror Stories (and How to Avoid)
Case 1: The $72k Repayment Trap
- What happened: Restaurant borrowed $50k at 1.44 factor
- Result: $72k repayment bankrupted them
- Calculator Prevention: Input factor >1.35 to see danger
Case 2: The 23% Daily Holdback
- What happened: Retailer accepted “low rate” but 23% holdback
- Result: Couldn’t buy inventory
- Calculator Prevention: Test holdback % before signing
Case 3: The 4-Month Term Squeeze
- What happened: Contractor took 4-month term for seasonal work
- Result:* Winter slowdown → default
- Calculator Prevention: Simulate slow-season sales
FAQ: Merchant Cash Advance Costs
Q: Can I negotiate MCA terms?
A: Yes! Use calculator outputs as leverage. Counter:
- Factor rates >1.30 → Aim for 1.22–1.28
- Holdback >15% → Push for 10–12%
Q: Do MCAs affect credit scores?
A: Rarely reported to bureaus – but defaults trigger UCC filings.
Q: What’s the cheapest MCA possible?
A: Businesses with 670+ credit, 10%+ margins, and $50k+ monthly revenue can access 1.18–1.22 factors.
Conclusion:
Understanding MCA math separates survival from thrive-al. Before accepting any offer:
- Calculate true costs with our free tool
- Compare alternatives
- Simulate cash flow impacts
“An advance that doesn’t let you profit isn’t capital – it’s captivity.”
Ready to make informed decisions? → Starting Gate Financial’s funding advisors will review your offer free of charge.