The True Cost of a Merchant Cash Advance: What You Need to Know

When businesses need quick access to working capital, many turn to Merchant Cash Advances (MCAs) as a flexible funding solution. While MCAs provide fast funding without the rigid requirements of traditional bank loans, it’s crucial to understand the true cost associated with them. In this blog, we’ll break down the factors that determine the cost of an MCA, helping you make informed decisions when securing financing.

Understanding How MCAs Work

Unlike traditional loans that come with interest rates, MCAs provide businesses with a lump sum of cash in exchange for a percentage of future sales. The amount repaid includes a factor rate—typically ranging from 1.2 to 1.5—applied to the funded amount. This means that if you receive a $50,000 advance with a 1.3 factor rate, your total repayment would be $65,000 ($50,000 x 1.3).

Key Cost Factors of an MCA

1. Factor Rate vs. Interest Rate
   Many business owners assume MCAs operate like traditional loans with annual percentage rates (APRs), but MCAs use a fixed factor rate instead. Unlike APRs, factor rates do not decrease over time, meaning the repayment amount remains the same regardless of how quickly you pay back the advance.

2. Repayment Structure
   MCA repayments are typically made through daily or weekly deductions from your sales. While this structure provides flexibility, it can also impact cash flow, especially for businesses with fluctuating revenue.

3. Term Length
   MCAs usually have shorter repayment periods—ranging from a few months to a year. The shorter the term, the higher the effective cost of borrowing.

4. Additional Fees
   Some MCA providers charge origination fees, administrative costs, or early repayment penalties. It’s important to review the terms carefully to understand any hidden fees that might increase the total cost.

Weighing the Pros and Cons

Pros:

• Fast approval and funding, often within 24-48 hours.

• No collateral required.

• Approval based on revenue rather than credit score.

• Flexible repayment tied to sales volume.

Cons:

• Higher overall repayment cost compared to traditional loans.

• Daily/weekly payments can strain cash flow.

• Limited regulation, making it essential to choose a reputable provider.

How Rowan Advance Helps You Make Smart Funding Decisions

At Rowan Advance, we believe in transparency and empowering business owners with the knowledge they need to make the best financial decisions. We offer competitive factor rates, clear repayment terms, and dedicated support to help you navigate your financing options.

Before committing to an MCA, it’s essential to assess how the repayment structure aligns with your revenue flow and long-term financial goals. If you have any questions or need guidance on the best funding solution for your business, our team is here to help.

Final Thoughts

MCAs can be a valuable tool for businesses in need of quick funding, but understanding their true cost is key to making the most of this financial option. By weighing the benefits, costs, and repayment structure, you can determine whether an MCA is the right fit for your business.

Looking for a funding solution tailored to your needs? Contact Rowan Advance today and let’s discuss how we can support your business growth!