The Visible and Hidden Costs of an MCA
The factor rate is only part of the cost. Most MCA transactions include additional fees reducing your net amount while increasing total repayment. Understanding all fees before signing is essential because they compound the already high cost.
Common MCA Fees
- Origination fee. Typically 2 to 5 percent, deducted from the funded amount before you receive it. On a $100,000 advance, a 3 percent fee means you receive $97,000 but owe the full purchased amount calculated on $100,000.
- Broker fee. 5 to 15 percent commissions, sometimes deducted from your advance, sometimes paid by the funder. Either way, you bear the cost.
- ACH processing fee. $1 to $5 per transaction. At 250 business days per year, that adds $250 to $1,250 annually on top of the factor rate.
- UCC filing fee. $20 to $100 charged to the borrower.
- Wire transfer fee. $25 to $50 for sending funds to your account.
- Late fees and default penalties. $25 to $100 per failed payment, plus daily penalty interest.
Fees That Should Raise Red Flags
Administrative fees, processing fees, underwriting fees, and documentation fees are sometimes layered on top. If total fees reduce net funding by more than 10 percent of the stated advance, you are being overcharged. Compare the net deposit to the contract amount. The difference is your total fee load.
How to Minimize Fees
Negotiate. Fees are not fixed. Get quotes from multiple funders and use competing offers as leverage. Ask for a clear breakdown of every fee before signing. Have an attorney review for hidden or excessive charges. Calculate total cost including all fees, not just the factor rate.