For their lines of credit, they are more transparent, using APR

  • An average factor rate for an MCA is 1.3X.
  • This means again for every $1 the MCA just sent you, you have to pay them back 1.3 times that amount. So let’s assume you took out an MCA today for a small amount, thinking that you would pay them back quickly once your financial situation improves or the crisis passes.

Like the MCA’s mentioned above and as noted in this 10Q, On Deck also quotes their pricing in different terms and don’t include APR on their term loans for small businesses

  • The amount you are advanced is $50,000.
  • You will as a result, owe the MCA 1.3 times $50,000 or $65,000 in total, regardless of how long it takes for you to pay them back.

Due to the MCAs structure to extract maximum return from you, the only thing fixed in stone is the total payback amount. This is unlike an interest rate a bank or other lender would charge you. With an interest rate loan, interest will accrue over time and if you repay the loan early, you no credit check payday loans Hamilton OH will pay less over the life of the loan. With an MCA, they don’t care when you pay them and repaying them early technically increases your true cost.

As seen in our example above, you can only know the true APR if you know exactly how long it will take to repay them. I will show you how to do this…

Like the MCA’s mentioned above and as noted in this 10Q, On Deck also quotes their pricing in different terms and don’t include APR on their term loans for small businesses

  • Advanced amount; $50,000
  • Factor rate; 1.3 times
  • Total owed; $50,000 times 1.3 = $65,000

If you pay the MCA in 90 days; $15,000 in interest for 90 days = an APR of 229%. That is not a typo. You have paid the MCA $ over 90 days. Multiply this by 4.05 to get an annualized APR. 4.05 times the $16, equals $64, or nearly equal to the $65,000 you agreed to pay in full.

Like the MCA’s mentioned above and as noted in this 10Q, On Deck also quotes their pricing in different terms and don’t include APR on their term loans for small businesses

  • If you pay the MCA off in 6 months, the true APR is 114%.
  • If you pay the MCA off in 9 months, the true APR is 76%.

This assumes a factor rate of 1.3 times. For a more common factor rate of 1.4, the true APR is even higher;

Keep in mind, some MCAs charge other fees on top of these sky high APRs, these can include an early termination fees, filing fees and the like.

Similar Small Loan Products

There are also many other variations in the marketplace that offer a low APR to a small business owner seeking quick capital, but after close scrutiny, many are expensive and may undermine the financial viability of a small business owner who won’t take the time to crunch the numbers.

Many of the providers of these tailored products for small business are not a good deal. I researched several well-marketed products and here are the facts of the true APR on some of their small business loans below.

On Deck is one of the better known of these small business online lenders and they actually are quite forthright about the true APR of their small business loans. As a publicly traded company, they are required to submit periodic reports and this is taken directly from their most recent 10Q report, dated . You can easily find their entire filings online or on their own website.

Instead they use a term “cents on the dollar” or COD. See this note from page 33 of the most recent 10Q.

Post a Comment

Your email address will not be published. Required fields are marked *