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The Sad & Expensive Truth about Merchant Cash Advance (MCA) Loan Rates

1.3 rate factor? Notarized COJ? What do these terms even mean? And more importantly, what is the real cost to you of a Merchant Cash Advance or MCA Business Loan? MCA loans are seen as bad credit business loans and are typically 4 to 10 times more expensive than Invoice Factoring with none of the protection.

The MCA ACH Loan Rule of Thumb says, whatever the MCA Rate Factor dollar amount is over the payback period, your net profit should be more. If not, at the end of that period you will be that much closer to bankruptcy. For example, if the ACH loan cost is $30,000 and you are paying it back in three months and your net profits are less than $30,000 in those three months – DON’T DO IT!

MCA loan rate

Real Cost of MCA loans

Does your business have IRS issues such as a federal tax lien or payroll tax issues? IRS issues are a non-starter to qualifying for a MCA Loan. Not with invoice factoring where you can have existing IRS issues and still qualify for funding.

Also, a merchant cash advance loan is a one-time event. You get $100,000 once. Then you hemorrhage cash via daily ACH payments from your bank account until you pay it off. With factoring companies, your business growth is your reward. The more sales you generate, the more working capital you receive based on your increased client billings. Client sales per month grew from $50,000 to $1,000,0000. The factor was with them for their entire successful journey with unlimited working capital and credit protection.

The only plus of an expensive ACH loan is you acquire your money a few days faster than from a reliable invoice factoring company like Paragon. However, the hidden negatives are so complicated that they could kill your company.

Example Rates & Fees: MCA/ACH Loan vs Factoring

MCA Rate Factor 1.6 $160,000 $160,000 $160,000
1.5 $150,000 $150,000 $150,000
1.4 $140,000 $140,000 $140,000
1.3 $130,000 $130,000 $130,000
Months Three months Six months Nine months
# of Daily Payments 63 126 189
Daily Payment Amount 1.6 $2,539 $1,269 $846
1.5 $2,380 $1,190 $793
1.4 $2,222 $1,111 $740
1.3 $2,063 $1,031 $687
MCA Loan APR! 1.6 423% 212% 142%
1.5 359% 181% 121%
1.4 294% 148% 99%
1.3 226% 114% 76%


Hypothetical $100,000 from a Factoring Company

Factoring $125,000/month with a 80% advance @ 1.5%/30 days

Monthly Factored Invoices $125,000
80% Advance $100,000
3 Months of Factoring Cost ($5,625)
Versus 3 Month MCA Fees  ($40,000)
Factoring Company Savings  $34,375!

Invoice Factoring typically includes the additional value-added services of Credit Protection & A/R Management, which means you receive even additional superior value versus any ACH/MCA/marketplace loan. You get so much more than just working capital from a good factoring company like Paragon. Our invoice factoring calculator estimates both factoring’s benefits and costs to you and allows you to compare the cost of lenders who offer fewer services and versus the killer high rates of an MCA loan.

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The Sad & Expensive Truth about Merchant Cash Advance (MCA) Loan Rates

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