Our goal at Lending Valley is to provide all small business owners access to the best loans possible for their business. You can rest assured we will get you the best rates in the market!
An MCA is not a traditional loan. It’s the purchase of a fixed portion of your business’s future revenue (typically future credit card and debit card sales, or a percentage of your total daily bank deposits) in exchange for an immediate, lump-sum payment of cash.
The legal distinction is crucial. Because the funder is buying future receivables (a commercial transaction) rather than lending principal, MCAs are generally not subject to the regulatory and usury laws that cap interest rates on traditional loans.
Instead of an interest rate, MCAs use a Factor Rate—a fixed multiplier applied to the advance amount. For example, a $10,000 advance with a 1.3 Factor Rate means you repay a fixed total of $13,000, regardless of how quickly you pay it back.
No, not generally. When you calculate the effective cost as an Annual Percentage Rate (APR), MCAs are almost always significantly more expensive than traditional bank loans or lines of credit. It often results in triple-digit APRs.
Repayment is usually daily or weekly, using one of two methods:
1. Split Withholding (a percentage of your daily credit/debit card sales is automatically deducted) or 2. ACH Withdrawal (a fixed or variable amount is automatically taken from your business bank account).
With true Split Withholding, your payment automatically decreases on slow days. However, with the common Fixed ACH Withdrawal, you must contact the provider. You have to request a reconciliation to avoid overpaying or causing NSF fees.
Generally, no. Since the Factor Rate establishes a fixed, total repayment amount, paying early only shortens the term. However, it does not reduce the dollar cost of the advance.
Yes, this is the top operational concern. The aggressive daily or weekly deductions are designed to be paid back quickly. Thus, it make it extremely difficult to cover essential operating costs like payroll and rent.
Yes. MCA providers focus primarily on your business’s consistent revenue and cash flow (verified through bank statements), making them a common option for businesses that are unable to secure bank financing due to low personal FICO scores.
Very quickly. This is one of the main advantages. The application is typically fast, and funds can often be approved and transferred to your bank account within 24 hours to a few business days.
The advance amount is typically based on a multiple (e.g., 1x or 1.5x) of your average monthly revenue, not your collateral.
Always ask. A direct funder underwrites the deal and provides the money; a broker is an intermediary who sells your deal to a funder and adds a commission, potentially increasing your total cost.
A COJ is a controversial clause that allows the funder to obtain a legal judgment against you upon default without a trial. Signing one is a major risk, and they are now prohibited or restricted in several states (like New York).
Almost always. This means if your business defaults, the funder can pursue your personal assets (savings, home equity, etc.) to collect the debt, making it a high-risk product.
A predatory renewal structure is a red flag. If the provider charges a full, new factor fee on the remaining balance of your old MCA, it can be an expensive form of “double-dipping.”
Stacking is taking a second or third MCA before the first one is paid off. Most contracts prohibit this, but it’s a major concern because it quickly spirals into an unmanageable debt trap.
Related: Loan Payoff Calculator: How to Pay Off Your Debt Years Earlier & Save Thousands
Historically, they have been largely unregulated. However, major states like California and New York have enacted Commercial Financing Disclosure Laws to require providers to disclose the true cost using a calculated Estimated APR.
It forces providers to present the financing cost in consumer-friendly terms, including the Estimated Annual Percentage Rate (APR), the total Finance Charge (dollar cost), and the estimated term—making it easier for merchants to compare offers.
They file a UCC (Uniform Commercial Code) lien on your business’s assets and future receivables to secure their position. This makes it very difficult to sell your business or get other forms of financing until the MCA is repaid.
The biggest risk is the debt trap. Due to the high cost and aggressive daily repayment, many businesses find themselves needing another high-cost MCA to cover the last one. Hence, it leads to cash flow strangulation and, potentially, business failure or litigation.
