Understanding MCA Costs Before You Apply

A merchant cash advance is priced using a factor rate, not an interest rate. This distinction matters more than most business owners realize. When a lender quotes you a 1.30 factor rate on a $100,000 advance, your total repayment is $130,000 — period. That $30,000 is the cost of capital, regardless of how quickly or slowly you repay.

Factor rates typically range from 1.10 to 1.50. The variables that drive your factor rate lower include: higher average monthly revenue, longer time in business, cleaner bank statement history, lower existing debt obligations, and a higher credit score. The variables that push it higher are the inverse.

Fixed Daily Debit vs. Percentage-Based Remittance

How you repay matters as much as what you repay. MCA lenders use two primary remittance structures:

• Fixed daily ACH debit: A set dollar amount is withdrawn every business day. Predictable repayment schedule, but the debit does not flex if revenue dips.
• Percentage holdback: A percentage of your actual daily deposits — typically 8%–18% — is remitted each day. High-revenue days repay more; slow days repay less. The advance is fully repaid when the total repayment amount is collected.

For businesses with consistent daily revenue (restaurants, retail, medical offices), fixed daily debits are manageable and predictable. For seasonal businesses or those with variable daily deposits, percentage-based structures reduce cash flow risk during slow periods.

How to Evaluate an MCA Offer

• Total repayment amount — Advance amount x factor rate. This is your all-in cost. Compare it against the revenue opportunity the capital will enable.
• Daily debit amount — Can your average daily deposits absorb this debit and still cover operating expenses? Daily debit should not exceed 10%–15% of average daily deposits.
• Estimated repayment term — Based on your average daily deposits and holdback percentage, how long will the advance take to repay? Most MCAs repay in 3–12 months.
• Prepayment provisions — Does the lender offer a buyout discount if you pay early? Ask specifically.

Smart Uses of Merchant Cash Advance Capital

• Pre-season inventory — A retailer buys $80,000 of inventory at a 30% margin. MCA cost is $18,000. Net return: $24,000 above cost.
• Revenue-generating equipment — A restaurant adds $40,000 in kitchen equipment that increases nightly covers. Revenue gain outpaces advance cost within 90 days.
• Contractor deposit for a large project — A construction firm needs $60,000 upfront to secure a $400,000 contract. The MCA cost is the price of winning the bid.
• Bridging a slow quarter — A seasonal business uses an advance to maintain staff during an off-season gap, protecting the infrastructure needed for peak season.

What Lenders Actually Review

MCA approval focuses almost entirely on your business bank statements: average monthly gross deposits, average daily ending balance, NSF frequency, and whether deposits are consistent. Personal credit is reviewed but is not the primary factor — scores from 500 are typically accepted.

Your Martimus advisor reviews your statement profile before submitting to any lender so you know what to expect before a single lender sees your file.

Frequently Asked Questions