Why these numbers matter to merchants
If you understand what an MCA portfolio actually earns and what it loses, you understand the floor on factor rates and the reason different funders quote different prices. Funders are not arbitrarily setting prices — they're solving a spreadsheet that ties cost of capital, expected losses, operating expenses, and LP return requirements together. Knowing the math gives you a sharper sense of when a quote is fair, when it's gouging, and when it's so cheap it should make you suspicious.
The numbers in this guide are aggregated from public ABS rating reports, regulatory disclosures, industry surveys, and our own conversations with funder credit teams. They're 2026 benchmarks — the picture shifts year to year as credit cycles move.
Gross yield — what the portfolio earns before anything
Gross yield on an MCA portfolio in 2026 averages roughly 35-45% APR-equivalent across the book, weighted by outstanding balance. This is the all-in price merchants pay, before any costs come out of it.
Breakdown by paper grade:
- A paper (FICO 700+, 2+ years in business, $30K+ monthly revenue): 28-35% APR-equivalent, typical factor 1.18-1.25 on 12-month terms
- B paper (FICO 620-700, 12-24 months, $15K+ monthly revenue): 35-45% APR-equivalent, typical factor 1.25-1.32 on 10-12 month terms
- C paper (FICO 550-620, 6-12 months, $10K+ monthly revenue): 45-60% APR-equivalent, typical factor 1.32-1.42 on 9-10 month terms
- D paper (FICO <550, 3-6 months, smaller revenue): 60-90% APR-equivalent, typical factor 1.42-1.55 on 6-9 month terms
Most institutional funders have a mix — a typical book might be 25% A, 40% B, 30% C, 5% D — giving a weighted gross yield around 40% APR-equivalent. Funders that specialize in A-paper run lower yields and lower losses. Funders that lean into D paper run higher yields and much higher losses.
Loss rates — what actually charges off
MCA losses are measured as cumulative net charge-offs as a percentage of originated principal. A funder that originates $100M and ultimately collects only $90M in principal (the rest charges off net of recoveries) has a 10% lifetime loss rate.
2026 benchmarks:
- A paper: 5-8% cumulative lifetime loss
- B paper: 9-12%
- C paper: 14-20%
- D paper: 22-30%+
Industry skew matters a lot:
- Restaurants: historically 12-18% loss rates; running closer to 15-22% in 2026 due to labor and food inflation pressure
- Trucking: 14-22% loss rates; very rate-sensitive to fuel prices and broker payment cycles
- Healthcare practices: 6-10% loss rates; typically the cleanest book for any funder
- Construction: 10-15% but high volatility — tied to material cost swings and progress-payment timing
- Retail: 8-12% for established retailers; 15-20% for newer/specialty
- Auto repair / services: 8-13%; relatively stable
Loss rate isn't just a credit quality measure — it's an operational measure too. A funder with strong collections recovery (cure rates of 30-40% on early delinquencies) reports lower net losses than a funder with the same gross defaults but weaker collections. This is why funder selection matters beyond the credit box decision — funders with mature collections operations can offer better rates because they recover more.
What eats the gross yield
A funder earning 40% gross APR-equivalent on a portfolio doesn't keep 40%. Here's where it goes:
- Losses: 8-15% of originations annualized — roughly 10-15% drag on yield
- ISO commission: 5-15% of advance face, financed over the life of the deal — 8-12% annualized drag on yield
- Cost of capital: 9-12% blended (warehouse + mezz + equity) — 9-12% drag
- Operating expenses: 4-6% of portfolio (underwriting, servicing, collections, tech, comp) — 4-6% drag
- Management fee: 2% of committed capital — 2% drag on net yield
A funder earning 40% gross yield ends up with roughly 12-16% net IRR to LPs after all of this comes out, assuming the book performs to expectations. When losses run higher than expected (a bad vintage, an industry downturn, an operations failure), net IRR can drop to 5-8% or even negative.
2026 trends — what's getting harder, what's getting easier
The 2026 MCA portfolio environment has some distinct features:
Headwinds
- EIDL hangover. Pandemic-era SBA EIDL loans are coming due for many merchants. Defaults on EIDL are correlating strongly with MCA defaults — merchants who can't pay one usually can't pay the other.
- Sticky service inflation. Labor costs in restaurants, trucking (driver pay), and services are running ahead of revenue growth. Margin compression is the dominant driver of higher loss rates in 2026.
- 2022-2023 vintage maturation. The credit box was looser during the post-pandemic stimulus environment. Those originations are now in late-life and showing higher-than-expected losses.
- Stacking persistence. Despite industry efforts, merchant stacking remains a major loss driver. Funders with weaker anti-stacking enforcement see meaningfully higher losses.
Tailwinds
- Better data infrastructure. Bank statement OCR (Ocrolus, Heron, Plaid) and credit bureau integration (Experian, Equifax commercial) have improved underwriting accuracy materially since 2020.
- Tighter underwriting. Funders have learned from 2022-2023 vintages and raised FICO floors, time-in-business floors, and bank-statement quality requirements. 2025-2026 originations should perform meaningfully better.
- State disclosure laws. NY, CA, VA, UT, NJ, OH and others now require APR-equivalent disclosure on commercial financing. This is pushing higher-quality merchants who shop on price toward funders with cleaner economics.
How to use this as a merchant
Three takeaways:
- Know where your file fits. If you're A paper, you should not be quoted C-paper pricing. If you're getting 1.35+ on a clean file, your broker is making more than they should and you're paying for it.
- Know which funders specialize. A funder with an A-paper-heavy book has the loss rate and cost structure to fight for A-paper deals. A C-paper specialist has the loss tolerance to write the deals A-paper funders won't touch. Wrong-funder match means wrong rate.
- Know which industries are friendly. Healthcare and auto repair run lower loss rates and get better pricing in 2026. Trucking and restaurants run higher losses and pay for it. Industry alone is not destiny, but it's a substantial input.
The honest bottom line
MCA is expensive money because it's high-loss-rate lending to small businesses that can't get bank credit. A 1.30 factor that generates a 12-15% net IRR to LPs looks predatory from one angle and looks reasonable from another — it depends on which side of the deal you're sitting on.
The honest position: the industry needs to exist because banks won't lend to most of the merchants who need capital, and the math of doing it requires the prices that get charged. But within that, there's enormous variation in what a specific merchant pays for the same risk — driven by funder selection, paper grade positioning, broker markup, and timing. The opportunity for merchants is in minimizing that variation, not in pretending the underlying economics work differently than they do.
Frequently asked questions
- What's a typical gross yield on an MCA portfolio in 2026?
- Roughly 35-45% APR-equivalent on average across the portfolio, depending on credit mix. A-paper portfolios run lower (28-35%); C-paper and D-paper run higher (45-65%). Gross yield is before losses, expenses, and capital costs.
- What's the typical loss rate?
- Cumulative lifetime loss on a typical MCA portfolio in 2026 runs 8-15% of originations. A-paper books often run 5-8%; B-paper 9-12%; C-paper 14-20%; D-paper 22-30%+. Loss rate is measured as gross charge-offs net of recoveries.
- What's the net yield to LPs?
- After capital costs, losses, expenses, ISO commission, and GP carry, net IRR to LPs in a well-run MCA fund typically runs 11-16% in 2026. Bad vintages deliver 5-9%; great vintages can deliver 18-22%.
- What drives losses higher in 2026 vs prior years?
- Three things: post-EIDL hangover from pandemic-era SBA debt, sticky inflation in food and labor pressuring restaurant and service-business margins, and the maturation of the 2022-2023 origination vintages which had looser credit boxes than current.
- How do funders manage loss rates?
- Tighter underwriting (raising FICO floors, time-in-business floors), more conservative paper-grade pricing, faster collections (earlier intervention on missed ACH), and credit-box adjustments by industry as loss data comes in. Loss management is the difference between a 13% IRR fund and a 6% IRR fund.