When you apply for an MCA, you will likely receive multiple offers — either from different funders directly or through a broker presenting several options. Comparing these offers is not as simple as picking the lowest factor rate. Here is a systematic framework for evaluating MCA offers that accounts for the full picture.
Step one: Calculate the total cost of capital. Take the total payback amount and subtract the net funding you receive. Emphasis on net funding — this is the amount that actually hits your bank account after any payoffs, origination fees, and other deductions. If Funder A offers $50,000 with a 1.30 factor rate ($65,000 payback) and Funder B offers $45,000 with a 1.25 factor rate ($56,250 payback), Funder B has a lower factor rate but also provides less capital. The total costs are $15,000 and $11,250 respectively.
Step two: Compare the daily payment amounts. Funder A might require $525 per day for 124 business days. Funder B might require $450 per day for 125 business days. Calculate each as a percentage of your average daily deposits. If you average $2,500 in daily deposits, Funder A's payment is 21% of daily cash flow while Funder B's is 18%. That 3% difference in daily cash flow impact adds up significantly over the life of the advance.
Step three: Calculate the effective cost per dollar borrowed. Divide the total cost by the net funding amount. Funder A: $15,000 divided by $50,000 equals $0.30 per dollar borrowed. Funder B: $11,250 divided by $45,000 equals $0.25 per dollar borrowed. Even though Funder A provides more capital, each dollar costs more. If you only need $45,000, Funder B is the better deal.
Step four: Examine the term length. A 6-month term with a 1.30 factor rate is much more expensive on an annualized basis than a 12-month term with the same factor rate. The 6-month deal has an effective APR of roughly 100%, while the 12-month deal is closer to 50%. Longer terms mean smaller daily payments and lower effective annual cost, but they also mean you are in debt longer.
Step five: Check for early payoff provisions. Some MCA contracts include an early payoff discount — if you repay the full balance within a certain number of days, you pay less than the full factor rate amount. For example, a contract might specify that payoff within 90 days reduces the payback amount by 10%. Other contracts have no early payoff benefit — you owe the full amount regardless. This matters if your business might have the cash flow to accelerate repayment.
Step six: Understand the payment structure. Daily ACH is the most common, but some funders offer weekly ACH, which gives your account more breathing room between withdrawals. A few funders offer split processing for businesses with credit card terminals. Compare how each option affects your daily cash management.
Step seven: Read the default provisions. What happens if a payment bounces? Some funders allow one or two missed payments before taking action. Others consider any missed payment an event of default that triggers penalty fees or acceleration of the full balance. The default language in the contract is critical.
Step eight: Evaluate the funder's reputation. A slightly higher factor rate from a reputable funder with transparent terms and responsive customer service is worth more than a rock-bottom rate from a funder with poor communication and hidden fees. Check reviews, ask for references, and talk to other business owners who have used the same funder.
Step nine: Factor in any additional costs. Some funders charge origination fees (typically 1-3% of the advance amount), wire transfer fees ($25-50), and administrative fees. These costs reduce your net funding and increase your total cost of capital. Make sure you are comparing all-in costs, not just the factor rate.
Step ten: Consider the relationship value. Some funders offer better terms on renewal — a second advance after successfully repaying the first. If a funder provides competitive first-deal pricing and has a track record of improving terms on renewals, that ongoing relationship value should factor into your decision.
Create a simple comparison spreadsheet with these columns: funder name, gross advance amount, payoffs and fees, net funding received, factor rate, total payback amount, total cost, daily payment, estimated term, cost per dollar borrowed, and daily payment as percentage of revenue. With this data side by side, the best offer becomes clear.