MCA funder fund structures borrow the standard private-credit playbook with adaptations for the asset's short duration and operational complexity. As of 2026-06-28, the dominant structure is a Delaware limited partnership (LP) holding the originated MCA portfolio, with a general partner (GP) entity managing originations and a parallel operating company handling sales, underwriting, and servicing.
The standard architecture.
The typical MCA fund has four legal entities:
- The Fund LP (Delaware LP). Holds the MCA portfolio. LPs (limited partners) commit capital here. Bankruptcy-remote where possible.
- The General Partner (GP) entity. Manages the fund. Receives the management fee and carried interest. Usually a Delaware LLC owned by the fund managers.
- The Investment Manager (LLC). Provides investment-management services to the fund under a Management Agreement. Often the same economic owners as the GP. SEC-registered if AUM exceeds $150M.
- The Operating Company / Originator (LLC or Inc.). The customer-facing brand — the entity ISOs and merchants interact with. Owns the warehouse facility relationships, underwriting team, sales team, and servicing infrastructure. Sells originated advances to the Fund LP at par (or at a slight markup that funds the operating company's overhead).
Capital structure (a representative $200M fund).
- LP commitments: $200M committed over a 3-year investment period, drawn down as advances are originated.
- GP commitment: $4M (2% of fund size — standard "skin in the game").
- Warehouse leverage: 2.5x — $200M equity supports ~$500M total deployable capital.
- Total origination capacity: $1.5B over fund life (capital recycles 3x given 6–12 month average advance duration).
Economic terms — the "2 and 20" with adaptations.
- Management fee: 1.5%–2.0% of committed capital during investment period; 1.0%–1.5% of NAV (or invested capital) during harvest period.
- Carried interest: 20% of profits above an 8% preferred return (hurdle), with full GP catch-up.
- Preferred return: 7%–9% to LPs before GP shares in profits.
- Hurdle calculation: European-style waterfall (whole-fund basis, not deal-by-deal) is more common in MCA than deal-by-deal American waterfalls used in PE.
- GP commitment: 1%–3% of fund size, paid in cash by the GP partners.
Target returns (2026 vintage).
- Gross IRR (asset level, before fees and defaults): 22%–28%.
- Net IRR (LP-level, after management fee, carry, defaults, and overhead): 12%–18%.
- Multiple on Invested Capital (MOIC): 1.4x–1.7x over the 5-year average hold.
- Cash yield (current income): 12%–20% annually, distributed quarterly.
Fund life and investment period.
- Total fund life: 7–10 years (shorter than buyout funds because MCAs are short-duration).
- Investment period: 3–4 years for deploying capital into new originations.
- Harvest period: 3–6 years for runoff of existing positions; no new originations.
- Extensions: Two 1-year extensions standard; require LPAC (LP advisory committee) approval.
LP composition (typical 2026 MCA fund).
- Institutional pension funds: 25–35% (state pension funds, Taft-Hartley plans).
- Insurance companies: 15–25% (life insurance, reinsurance).
- Family offices: 20–30% (multi-family offices, single-family offices).
- Endowments and foundations: 5–10%.
- Fund-of-funds: 5–10%.
- High-net-worth individuals (via feeder funds): 5–15%.
Subscription documents and side letters.
- Subscription Agreement. Standard PE/credit fund document; LP commits capital.
- LPA (Limited Partnership Agreement). Governs all economics, governance, and operations.
- Side letters. Specific to large LPs — MFN (most-favored-nation) provisions, fee discounts, advisory committee seats, opt-out rights.
- Co-investment rights. Some LPs negotiate the right to invest directly alongside the fund in larger deals.
Reporting cadence to LPs.
- Quarterly capital account statements.
- Quarterly portfolio reports (origination volume, default rates, factor mix, geographic and industry concentration).
- Annual audited financial statements.
- Annual LP meeting with portfolio review and Q&A.
The fund-of-one vs. comingled-fund distinction.
- Comingled fund. Multiple LPs in a single fund; standard structure.
- Fund-of-one (Separately Managed Account, SMA). Single LP commits all capital; custom terms, often lower fees, full transparency. Common for $100M+ allocations from large pensions or family offices.
Tax structure.
- U.S.-domiciled fund: Delaware LP, treated as a partnership for U.S. tax; passes through ordinary income to LPs.
- Offshore feeder fund: Cayman LP for non-U.S. and tax-exempt investors to avoid UBTI (unrelated business taxable income).
- Master-feeder structure: Most common — onshore + offshore feeders investing in a master fund.
Common confusions.
First, "All MCA funders are structured as funds." False — many large MCA funders (OnDeck/Enova, Forward Financing, Credibly) are operating companies funded by their parent's balance sheet, not by LP commitments. Fund structures are most common in independent platforms scaling $50M–$500M of capital.
Second, "Carried interest in MCA funds is taxed at long-term capital gains rates." Largely false — most MCA fund carry is taxed as ordinary income because the underlying advances are short-duration receivables, not capital assets held for >1 year.
Third, "MCA funds are easy to liquidate if I need my money back." False — these are illiquid limited partnerships; secondary market exists but discounts of 10–25% are common.
The 2026 takeaway. Understanding fund structure matters for ISOs and merchants because it explains funder behavior: deployment urgency (investment period vs. harvest), risk appetite (early-vintage vs. late-vintage), and renewal willingness (concentrated harvest periods constrain new advance capacity).
Related terms
- MCA funder LP/GP economics — LPs (Limited Partners) supply ~98% of MCA fund capital and earn a preferred return (7–9%) plus 80% of profits above the hurdle; GPs (General Partners) supply 1–3% but earn 20% carried interest plus management fees.
- MCA funder management fee (typical) — Standard MCA fund management fees in 2026 are 1.5–2.0% of committed capital during the investment period, stepping down to 1.0–1.5% of invested capital during the harvest period — lower than buyout PE because MCA assets are short-duration.
- MCA funder carried interest (typical) — Standard MCA fund carried interest is 20% of profits above a 7–9% preferred return, with European-style whole-fund waterfall and full clawback; taxed as ordinary income in most cases due to short-duration assets.
- MCA funder fund vintage impact — Fund vintage (the year capital was first deployed) materially affects MCA fund returns: 2020–2021 vintages benefited from COVID stimulus tailwinds; 2024–2025 vintages face tighter credit and higher defaults; 2026 vintages are positioned for the next cycle peak.
- MCA funder warehouse line of credit — A revolving secured credit facility from a bank or private credit fund that lets MCA funders borrow against advances they originate — priced at SOFR+400 to SOFR+800 in 2026, with advance rates of 70–85% of eligible collateral.
Authoritative sources
- ILPA — Institutional Limited Partners Association Principles
- Preqin — Private Debt Quarterly Update 2026
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