A merchant cash advance has no interest rate, so the cost works differently than a loan. Below is the math on a $50,000 advance, what makes the cost go up or down, and how the daily payment fits into your operating budget.
The base math: $50K at a 1.30 factor
Take a $50,000 advance at a 1.30 factor rate over 7 months. The numbers:
- Advance amount: $50,000 (cash to your account)
- Factor rate: 1.30
- Total payback: $50,000 × 1.30 = $65,000
- Total cost of capital: $65,000 - $50,000 = $15,000
- Term: approximately 150 business days (7 months)
- Daily payment: $65,000 ÷ 150 = approximately $435/day
- Weekly outflow: 5 × $435 = $2,175/week
- Monthly outflow: approximately $9,300/month
The $15,000 cost is paid in equal daily ACH debits over the term, not as a separate fee. There's no upfront interest charge, no end-of-term balloon, no separate origination payment in most contracts.
How the factor rate moves the cost
Factor rate is the single biggest cost lever. Here's the same $50K advance at different factors:
- 1.20 factor (best paper): $60,000 payback, $10,000 cost. Daily payment $400.
- 1.25 factor (strong file): $62,500 payback, $12,500 cost. Daily payment $417.
- 1.30 factor (standard): $65,000 payback, $15,000 cost. Daily payment $435.
- 1.35 factor (Tier 2): $67,500 payback, $17,500 cost. Daily payment $450.
- 1.40 factor (Tier 2-3): $70,000 payback, $20,000 cost. Daily payment $467.
- 1.45 factor (Tier 3): $72,500 payback, $22,500 cost. Daily payment $483.
The spread between best and worst factor on the same $50K advance is $12,500 — that's real money. The four levers that move your factor: file strength (bank statements), existing positions, industry tier, time in business. None of these are about the advance amount itself.
What about origination fees
Origination fees vary by funder and are typically 0%-3% of the advance amount on $50K deals. On the higher end, that's an additional $1,500. Some funders bundle origination into the factor rate; others charge it separately and deduct it from the wire.
Always ask: "Is the factor rate inclusive of all fees, or is there a separate origination?" The answer affects your real cash-in-hand.
How the daily payment fits operating budget
For a business that does $50,000 in monthly deposits ($2,300/business day average), a $435 daily payment is roughly 19% of average daily revenue. That's high — most underwriters target 10-15% — and is why a $50K advance against $50K/month revenue is generally a stretch deal.
For a business that does $100,000/month ($4,600/day), the same $435/day is roughly 9.5% of daily revenue. Comfortable.
The math says: $50K is the right advance size for businesses doing $80K-$120K/month, sized at a 0.5-0.6x ratio. Below that, the advance pinches cash flow. Above that, you can support a bigger advance.
Comparing the cost honestly
If we converted the cost to an annualized equivalent (which the MCA industry doesn't because the product isn't a loan), a $50K at 1.30 over 7 months reads roughly equivalent to a 50-60% APR loan. The product is more expensive than a bank loan or SBA. That's the trade for speed (24-48 hour funding versus 60-120 days), no credit minimum, and accepting deals other lenders won't.
The honest framing isn't "is this expensive" — it's "is the capital generating more than $15K of value in the next 7 months." If yes, the math works. If no, wait for cheaper capital.
Sources & References
- Bank denial and small business credit access figures cited in this piece are derived from the Federal Reserve Small Business Credit Survey. Approval rates for small business credit applications at large banks have ranged from approximately 13%-31% across recent survey years, depending on bank category and reporting period.
- Small business finance landscape and lending program data: SBA Office of Advocacy.
- Merchant cash advance industry standards and disclosure practices: Small Business Finance Association (SBFA).
- Commercial financing disclosure regulations referenced (NY FAIR Act, CA SB 1235/666/362, VA, UT) are summarized from the published statutes; consult counsel for specific compliance application.