Factor Rate vs. Interest Rate: The Real Cost of an MCA
A 1.4 factor sounds small. Repaid over 6 months, it can mean an effective annual cost well into triple digits.
MCAs are typically quoted with a factor rate such as 1.3 or 1.45. Multiply it by the advance and you get the total payback. A $100,000 advance at a 1.4 factor means $140,000 repaid.
Why time matters
The shorter the repayment window, the higher the effective annual cost. Paying $40,000 in cost over six months is far more expensive on an annualized basis than the same cost spread over several years.
Compare apples to apples
A term loan with an interest rate amortizes over time, so you pay interest on a declining balance. With an MCA, the cost is fixed upfront — paying early often doesn't save you anything unless the contract includes a discount.
What to do
Gather your contracts and ask for a side-by-side comparison. Seeing the real numbers is often the first step toward a better structure.