10 min read
Jason, Founder
•
January 15, 2025
Let's talk about something the MCA industry doesn't like to discuss: what your funding actually costs.
I've sat across the table from hundreds of merchants over the years. Most of them had been pitched MCAs before. Most of them didn't really understand what they were paying. And honestly? That's by design.
The MCA industry has perfected the art of making costs confusing. Factor rates instead of interest rates. Holdback percentages that sound reasonable until you do the math. Fees buried in page 47 of a contract nobody reads.
Today, I'm going to break all of that down. No jargon. No dancing around the numbers. Just the truth about what MCAs cost—and why we've built LendMatrix to show you everything upfront.
When you get an MCA offer, you'll hear something like: "We can do $50,000 at a 1.35 factor rate."
Sounds reasonable, right? 1.35 doesn't seem like much. It's not even 2.
Here's what that actually means:
You borrow $50,000. You pay back $50,000 × 1.35 = $67,500.
That's $17,500 in fees. On a 6-month repayment term, that's roughly 70% APR when you annualize it.
For comparison:
I'm not saying MCAs are bad—they serve a real purpose for businesses that can't access traditional credit. But you should know exactly what you're paying.
Here's where it gets tricky. MCAs don't have fixed monthly payments like a loan. Instead, they take a percentage of your daily revenue.
This is called the "holdback percentage." Typical range: 10-20% of daily sales.
Sounds manageable. But let's do the math:
Say you're a restaurant doing $3,000/day in credit card sales. A 15% holdback means $450/day going to your MCA provider. That's $13,500/month.
For a business running on thin margins (and most restaurants run 3-9% net margins), that's often the difference between staying open and closing.
The industry will tell you holdback is "flexible" because it adjusts with your revenue. That's true—if you have a slow day, you pay less. But here's what they don't mention:
Factor rate is just the headline. Here's what else might be lurking in your contract:
Origination fees: 1-3% of the funded amount, taken off the top. That $50,000 advance? You might only see $48,500 in your account.
ACH fees: $1-5 per daily withdrawal. Doesn't sound like much until you realize that's $30-150/month just in transaction fees.
Bank fees: Some providers charge you for their banking costs. Yes, really.
Early payoff penalties: Want to pay off your advance early? Some contracts charge you the full remaining factor anyway.
NSF fees: If a daily payment bounces, you're looking at $25-50 per occurrence. Have a few bad days in a row? Those fees stack up fast.
Renewal fees: Renewing your advance often comes with a new origination fee on top of the existing balance.
Simple: transparency kills bad deals.
If you knew upfront that a 1.35 factor rate equals 70% APR, you might shop around more carefully. You might ask harder questions. You might walk away from predatory offers.
The industry has settled into a comfortable opacity. Factor rates sound better than APRs. Holdback percentages sound better than monthly payment amounts. And fees buried in contracts don't come up until it's too late.
This is why the Yellowstone Capital scandal hit so hard. They were charging merchants fixed daily payments regardless of revenue—which isn't even a real MCA, it's just a high-interest loan with extra steps. But merchants didn't know that until they were already drowning.
I built LendMatrix because I was tired of this opacity—both as someone who's worked in MCA and as someone who's watched merchants get burned.
Here's our approach:
We show the APR equivalent. Not just the factor rate. You see the annualized cost right next to any offer so you can compare apples to apples.
We break down every fee. Origination, ACH, bank fees—it's all itemized before you sign anything. No surprises on page 47.
We show the total cost of capital. Funded amount, payback amount, all fees combined. One number that tells you exactly what this advance will cost.
We track revenue-based holdback honestly. If your holdback is 15%, we take 15% of actual daily revenue. No hidden minimums, no surprises.
We let you model scenarios. What if you have a slow month? What if revenue drops 20%? Our calculators show you exactly how that affects your payback timeline and total cost.
Whether you use LendMatrix or not, here's how to cut through the confusion:
1. Calculate the total payback. Funded amount × factor rate = total payback. This is non-negotiable math.
2. Ask for the APR equivalent. If they won't give it to you, calculate it yourself or walk away. California and New York now require this disclosure—if your provider isn't in those states, they should still be willing to share it.
3. Get a full fee schedule. In writing. Before you sign. Every fee, every scenario.
4. Understand the holdback impact. Calculate what 10%, 15%, 20% of your daily revenue actually looks like in dollars. Can your cash flow handle it?
5. Read the early payoff terms. Can you pay off early and save money? Or are you locked into the full factor regardless?
6. Ask about stacking policies. If you take another advance later, what happens? Some providers accelerate payments or call the full balance due.
MCAs aren't inherently evil. For businesses that can't access traditional credit—bad credit history, thin time in business, seasonal revenue—they're often the only option. And when used strategically, they can fund growth that wouldn't otherwise happen.
But you should never take an advance without understanding exactly what it costs. Factor rates are marketing. APR is reality.
We built LendMatrix to make that reality visible. Because in an industry that profits from confusion, clarity is revolutionary.
And honestly? If more providers were forced to show their true costs upfront, the predatory ones would disappear overnight.
Have questions about evaluating an MCA offer? We're building tools to help. Check out our cost calculator in the Tools section, or reach out directly—we're happy to walk through the math with you, even if you never become a customer.