Key points
- Start with payback (advance × factor rate) and cost of funds (payback − advance), then add every fee.
- A fee deducted at funding costs more than its face value because the factor rate still applies to the full advance.
- A 3% fee on the reference deal raises the total cost to $19,000 and the estimated APR from 94.6% to 104.8%.
- Renewing halfway through the reference deal with no discount costs $17,500 for $16,250 of new cash.
- Get 6 figures in writing: payback, total cost, cash received, payment, term with estimated APR, and renewal and payoff terms.
Start with payback and cost of funds
On the reference deal, a $50,000 advance at a factor rate of 1.35, the payback is $67,500 and the cost of funds is $17,500. Divide the cost by the advance and you get $0.35 of cost for every dollar advanced. Spread over 8 months of daily debits, that is 168 business days at $401.79 and an estimated APR of about 95%.
If an offer stopped there, the price would be easy to read. But fees, the way fees are collected, and what happens when you renew all move the real number, and none of them show up in the factor rate. If you want the background on converting a factor rate to an APR first, read factor rate vs APR.
Fees that sit outside the factor rate
- Origination or underwriting fee. A one-time percentage of the advance. Credibly discloses a 2.5% underwriting fee on direct deals, paid through the first several remittances. Fora Financial says its one-time origination fee can be as low as 2.5%. Rapid Finance says fees may be charged and deducted from the advance amount.
- Administration fee. A recurring charge. Credibly discloses a $50 monthly administration fee on MCAs, which adds $400 to an 8-month deal.
- Wire fee. Fora Financial mentions a one-time wire transfer fee without publishing the amount. Ask whether ACH delivery is available without the fee.
- Returned-payment fee. Charged when a debit bounces. Smart Step Funding says an NSF fee may be charged to cover its own bank's fee.
- Other line items. Look for ACH program fees, UCC filing charges or stacking fees. If a fee is not in the written disclosure or the contract, ask in writing whether it exists.
New York's disclosure law requires providers to describe other potential fees, such as late and returned-payment fees, alongside the finance charge. Even where no law requires it, you can ask for every fee in writing before you sign.
When fees come out of the advance
Worked example. The reference deal with a 3% fee ($1,500) deducted at funding.
- Advance on the contract: $50,000. Cash that reaches your account: $48,500.
- Payback: $50,000 × 1.35 = $67,500, unchanged.
- Total cost: $67,500 − $48,500 = $19,000.
- Cost per dollar received: $19,000 ÷ $48,500 = $0.39.
- Estimated APR: about 105% (104.8%), up from 94.6% without the fee.
- Add a $50 monthly administration fee for 8 months: total cost $19,400 and an estimated APR of about 107% (106.7%).
The fee costs you twice. You pay it, and you pay the factor rate on the full $50,000 even though $1,500 of it never reached your account. When you plan the use of funds, start from the net figure. A $50,000 approval that lands as $48,500 will not cover a $50,000 invoice.
Cost per dollar you actually receive
| Fee deducted | Cash received | Total cost | Cost per dollar received | Estimated APR |
|---|---|---|---|---|
| None | $50,000 | $17,500 | $0.35 | 95% |
| 2.5% ($1,250) | $48,750 | $18,750 | $0.38 | 103% |
| 3% ($1,500) | $48,500 | $19,000 | $0.39 | 105% |
| 5% ($2,500) | $47,500 | $20,000 | $0.42 | 112% |
All rows: $50,000 advance at a factor rate of 1.35 over 8 months of daily debits. Cost per dollar tells you how much you pay for each dollar you get to use; the estimated APR adds how long you get to use it. You need both, because a short deal can have a low cost per dollar and a high APR.
How renewals can double-charge
A funder may offer a renewal once you have paid down part of an advance. The new advance first pays off what you still owe, and you receive the rest. The catch is that the balance you still owe on an MCA includes the unearned part of the original cost.
Worked example. Halfway through the reference deal, after 84 business days, you have paid $33,750 and still owe $33,750. Proportionally, $8,750 of that balance is the original cost you have not yet paid.
- You renew for a new $50,000 advance at a factor rate of 1.35, with no discount on the old balance.
- $33,750 pays off the old deal. New cash in your account: $16,250.
- New payback: $67,500 at $401.79 per business day for 168 business days.
- Without the renewal you would have finished in 84 more business days. With it, you pay 84 extra days of $401.79, or $33,750, for $16,250 of new cash.
- Incremental cost: $17,500 on $16,250 of new money, or $1.08 per new dollar, an estimated APR of about 148% on the new cash.
Renewals are not always this expensive. If the funder discounts the unpaid cost on the old balance, the math improves, and our guide to early payoff and prepayment discounts shows how those discounts work. Always price a renewal on the new cash it puts in your account, not on the headline advance.
Broker pay and the price you see
Some funders quote brokers a buy rate and let them add points on top. One funder's partner page, for example, advertises buy rates starting at 1.25 and commissions of up to 15 points. The factor rate a merchant sees can include that compensation.
Openbook Capital is paid a commission by the funder when a deal funds, charges no fee to apply and no upfront fee, and tells you how it is paid on your deal. Our guide to how brokers get paid explains buy rates and points.
Costs that never show up in dollars
- Personal guarantee. In a true MCA, the owner's guarantee should cover performance of the contract, such as not diverting deposits, rather than the level of sales. Read exactly what it covers and what counts as a breach.
- UCC lien. A UCC-1 filing gives the funder a recorded claim on business receivables and sometimes on all business assets. Other lenders will see it, and it can delay a bank loan or new financing until it is released.
- Confession of judgment. A clause that lets the funder obtain a court judgment without a lawsuit if you default. New York's CPLR 3218 now allows these to be filed only in the county where the defendant resided, which keeps most out-of-state businesses out of New York courts on this route.
These terms matter because of how they have been used. In 2022 the Federal Trade Commission settled its case against RCG Advances, which it said told businesses no personal guarantee was required when its contracts included one and forced businesses into confessions of judgment. The settlement banned the company and its owner from the merchant cash advance business.
A cost checklist for any offer
- Total payback
- Total cost in dollars, including every fee
- Cash that will actually reach your account
- Payment amount and schedule
- Estimated term and estimated APR
- Renewal and early payoff terms
Skipping this step is how costs end up higher than expected. In the Federal Reserve's 2025 Small Business Credit Survey, 60% of firms that borrowed from online lenders said their actual borrowing costs were higher than expected, compared with 37% at small banks and 32% at large banks. Openbook shows these 6 figures for every offer it presents, and the offer decoder will work them out for a quote you already have.
Questions
Is the factor rate the whole cost of an MCA?
No. Origination, administration, wire and returned-payment fees can add to it. Fees deducted at funding also reduce the cash you receive while the payback stays the same, which raises the real cost further.
Why did less money arrive than the amount I was approved for?
Usually because fees were deducted at funding. Ask for the net funding amount in writing before you sign and plan your spending from that number, not the headline advance.
Does renewing an MCA save money?
Not unless the funder discounts the unpaid cost on your old balance. Price a renewal on the new cash it puts in your account; in our worked example, $16,250 of new cash cost $17,500.
How do I compare the cost of an MCA with a loan?
Compare the total dollar cost, the cost per dollar you actually receive and the estimated APR. The APR is the only one of the 3 that accounts for how long you keep the money, so it is the fair basis across products.
Have an offer on the table?
Decode it before you sign, or let us bring back offers from funders that fit, each with its full cost.
Sources
- Frequently asked questions — Credibly (checked 2026-09-30)
- FAQ — Fora Financial (checked 2026-09-30)
- Merchant cash advance — Rapid Finance (checked 2026-09-30)
- FAQs for customers — Smart Step Funding (checked 2026-09-30)
- Partners — Lendini (checked 2026-09-30)
- N.Y. Financial Services Law § 803, sales-based financing disclosures — New York State Senate (checked 2026-09-30)
- FTC action results in ban for Richmond Capital and owner from merchant cash advance, debt collection industries — Federal Trade Commission (checked 2026-09-30)
- N.Y. CPLR § 3218, judgment by confession — New York State Senate (checked 2026-09-30)
- 2026 Report on Employer Firms: findings from the 2025 Small Business Credit Survey — Federal Reserve Banks (checked 2026-09-30)
This guide is general information, not legal, tax or financial advice. Figures are examples worked with the method in our disclosures.