MCAs Do Not Have Interest Rates
Technically, MCAs have factor rates, not interest rates. An interest rate accrues over time. A factor rate is a fixed multiplier applied once at origination. Whether you repay in three months or twelve, the total cost is the same. The effective annual rate changes dramatically depending on repayment speed.
What MCA Rates Actually Look Like
- Factor rate 1.2 with 6-month repayment: approximately 40% APR
- Factor rate 1.3 with 6-month repayment: approximately 60% APR
- Factor rate 1.4 with 4-month repayment: approximately 120% APR
- Factor rate 1.5 with 3-month repayment: approximately 200% APR
Compare to SBA loans at 6-8%, business lines at 8-25%, or business credit cards at 20-30%.
Why Funders Use Factor Rates Instead of APR
A factor rate of 1.35 sounds like 35 percent. An APR of 94 percent sounds terrifying. Both describe the same transaction. Funders use factor rates because they obscure the true cost.
What to Do If You Are Already Paying Too Much
If your MCA has an effective rate exceeding your state’s usury limit, you may have grounds for recharacterization. If a court determines the MCA is actually a loan, the rate can be reduced to the legal maximum. Talk to an attorney who can evaluate your contract.