How to Avoid the MCA Debt Trap

TL;DR — MCAs charge 60-100%+ effective APR. They look easy. They are not loans (legally). Here's how to spot one before you sign.

What an MCA actually is

A Merchant Cash Advance buys your future receivables at a discount. They give you $100K today; you owe them, say, $135K in "factor amount." Then they take 10-15% of every dollar you collect until they're paid back.

It's not a loan. There's no interest rate disclosed. There's no APR disclosed (unless your state forces it).

How to spot one

The marketing says "funding" instead of "loan"
They ask for bank statements only — no tax returns, no P&L
The pitch is 24-48 hour funding
The contract uses words like "factor rate," "specified percentage," "holdback"
They want ACH access to your business account
They mention a "COJ" (confession of judgment)

The math

A $100K MCA at a 1.35 factor over 6 months works out to roughly 75% APR. At 9 months it's about 50%. At 4 months it's over 100%.

Compare that to a working-capital line of credit at 18-30% APR. Same speed-to-fund, half the cost.

When an MCA might still make sense

You already got declined by every cheaper option
You have a specific receivable coming in that pays this off in <90 days
Your math literally works out (rare)

What to do if you're already in one

Refinance. Stack-refi if you have to. Consolidate to a real loan. The longer you sit on an MCA, the deeper the hole gets.