How much does a merchant cash advance actually cost?

Reviewed by Turan Zeynal, Managing Partner, Outset Funding Partners · Last reviewed July 17, 2026

TL;DR

The true cost of an MCA is the difference between what you receive and what you repay, spread over how long repayment takes. A $50,000 advance at a 1.30 factor costs $15,000 in fees. If it's collected in 8 months through daily debits of ~$369, that's roughly a 55% effective APR — but the number that actually matters to your business is the daily debit, because that's what hits cash flow.

Quick facts

Advance amount: $50,000
Factor rate: 1.30
Total payback: $65,000
Cost of capital: $15,000
Daily debit (8 mo): ~$369
Daily debit (12 mo): ~$246
Est. APR (8 mo): ≈ 55%
Est. APR (12 mo): ≈ 35%

The 60-second answer

Business owners fixate on the factor rate; funders fixate on the payoff term; but the number that decides whether an MCA is a smart move or a slow squeeze is the daily debit. If your daily debit exceeds the daily gross margin the advance is generating, you're paying it back with money you don't yet have — which is how stacking cycles start.

Below are three worked examples at typical MCA sizes. Use them as anchors when reading offers: any deal with a daily debit above 8–10% of your average daily deposits is worth stress-testing against a slow month.

How it works, step by step

Multiply advance × factor rate
That's your total payback. $50,000 × 1.30 = $65,000.
Subtract advance from payback
That's your cost of capital. $65,000 − $50,000 = $15,000.
Estimate business days to repay
Assume ~22 business days per month. An 8-month term = ~176 business days.
Calculate daily debit
Total payback ÷ business days. $65,000 ÷ 176 ≈ $369/day.
Stress-test daily debit
Compare the daily debit to your average daily deposit. If it's over ~10% of that, model a 20% slow month before signing.

Why the daily debit — not the APR — is the number that matters

Business owners spend hours comparing APRs across offers, then sign a deal whose daily debit their revenue can't actually absorb. APR is a comparison metric for underwriters and journalists; the daily debit is what your operating account experiences every business day for the next 6–12 months. A "cheaper" 45% APR deal with a $520 daily debit will bury a business faster than a "more expensive" 60% APR deal with a $290 daily debit, if your average daily deposits are $3,500.

The rule of thumb we use when placing files: the daily debit should sit under 8% of average daily deposits for a comfortable file, and under 12% for an acceptable one. Anything above 15% assumes every month is a good month, which is exactly the assumption that breaks in month four. A quick sanity check — pull your last 90 days of deposits, divide by 66 business days, and compare the resulting number to the daily debit on the offer in front of you.

The other cost most people miss is the opportunity cost of prepayment. Because most MCA funders collect the full payback regardless of how fast you pay, a windfall used to pay off an MCA early earns you zero interest savings. That same windfall parked in a business savings account or used to reduce a revolving line of credit produces real returns. Prepay only if your funder explicitly documents a factor discount for early payoff — otherwise the money is better deployed elsewhere.

Worked examples

Option	When to use	Watch out for
$25,000 · 1.25 factor · 6 months	Total: $31,250 · Cost: $6,250	Daily debit ~$237 · APR ≈ 50%
$50,000 · 1.30 factor · 8 months	Total: $65,000 · Cost: $15,000	Daily debit ~$369 · APR ≈ 55%
$100,000 · 1.35 factor · 12 months	Total: $135,000 · Cost: $35,000	Daily debit ~$511 · APR ≈ 45%
$50,000 · 1.40 factor · 6 months	Total: $70,000 · Cost: $20,000	Daily debit ~$530 · APR ≈ 80%

Frequently asked questions

What is the effective APR on an MCA?

Effective APRs on MCAs typically range from ~30% to well above 100% depending on the factor rate and payoff term. A 1.30 factor over 12 months is roughly 35% APR; the same factor over 4 months is roughly 100%.

How is the daily payment calculated?

Two structures exist. In a true split-funded MCA, the daily payment is a fixed percentage of that day's card sales. In a fixed daily ACH structure, the funder debits a set dollar amount every business day until the payback total is reached.

Are there any hidden MCA fees?

Common add-ons include an origination fee (1%–3%), an ACH or wire fee ($25–$75), and sometimes a monthly maintenance fee. Always ask for the 'total funded to your account' figure — that's your advance net of fees.

Can I negotiate the factor rate?

Yes, especially with multiple competing offers. Stronger bank statements, longer time in business, and higher credit unlock lower factors. A funding marketplace typically produces 2–4 competing offers on the same file.

Do MCA payments include interest?

Legally no — MCAs are structured as purchases of receivables, not loans, so there is no interest in the regulatory sense. The 'cost' is the spread between the advance and the total payback.

Sources

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