# MCA true cost calculator (factor + PSF + wire-off + bounce risk)

> True MCA cost = (total repayment + expected bounce fees + opportunity cost of locked daily cash flow) ÷ net amount received. Often 20-40% higher than the quoted factor implies.

Calculating the true cost of an MCA requires going beyond the headline factor rate. Funders quote a factor; ISOs talk about "the cost"; merchants compute what they think they're paying — and all three numbers are usually wrong by 15-40%. A real cost calculator integrates five components most quotes ignore.

**The mechanics — the five cost components.**

**1. Gross factor cost.** The straightforward calculation: (factor − 1) × advance amount. A $100K advance at 1.30 factor = $30K gross cost.

**2. PSF / origination / processing fees.** Added to the merchant's repayment balance, often 3-7% of the advance. A 5% PSF on $100K = $5K added to repayment. New total repayment = $135K instead of $130K. True factor = 1.35.

**3. Wire-off (net funding reduction).** Funder wires net of broker fee — merchant receives $95K instead of $100K. Effective denominator drops while numerator (total repayment) stays the same. True factor on actual cash received = $135K ÷ $95K = 1.42.

**4. Bounce fees (probability-weighted).** Based on the merchant's NSF history and cash-flow seasonality, estimate expected bounce events over the term. A merchant with 1-2 NSFs/quarter is likely to incur 3-6 bounce fees over a 9-month term, at $35 each = $105-$210. A merchant with seasonal revenue drops is likely to incur 8-15 bounce fees = $280-$525. Add to the cost numerator.

**5. Opportunity cost of locked daily cash flow.** This is the most-ignored cost. The merchant has $667/day of cash flow that cannot be deployed elsewhere — cannot pay down credit cards (typically 22-29% APR), cannot pre-pay vendors for discount, cannot invest in inventory at margin. Estimate the opportunity cost as 15-25% of the daily debit times the term — represents the foregone yield on the locked capital.

**The math — worked example.** Merchant takes a $100K advance, quoted 1.30 factor, 9-month term, 5% PSF, $5K wire-off, daily ACH of $667. Merchant's historical NSF rate is 2 events per year. Merchant has $15K in credit card balances at 24% APR they could otherwise pay down.

- Gross factor cost: $30K
- PSF: $5K
- Wire-off: $5K
- Expected bounce fees: 1.5 events × $35 = $53 (low)
- Opportunity cost of $667/day for 9 months on credit card paydown alternative: $667 × 195 days = $130K of cumulative cash flow locked. At 24% APR opportunity cost on average half-balance: ~$7,800 over the term.

True total cost: $30K + $5K + $5K + $53 + $7,800 = $47,853 on $95K net received over 9 months. True effective rate: $47,853 / $95K = 50.4% over 9 months = 67% APR-equivalent.

The merchant thought they were paying 1.30 factor (= 49% APR-equivalent on the gross calculation). They're actually paying 67%, roughly 37% higher than the headline.

**The component breakdown — where the gap comes from.**

- Headline (factor only): $30K cost, 1.30 factor, 49% APR-equivalent on $100K.
- Add PSF: $35K cost, 1.35 effective factor, 56% APR-equivalent on $100K.
- Subtract wire-off from received: $35K cost on $95K received, 1.42 effective, 65% APR-equivalent.
- Add expected bounce fees: marginal — usually 1-3% addition unless merchant is high-NSF.
- Add opportunity cost: 8-25% addition depending on merchant's alternative capital uses. The single biggest hidden cost component.

**The strategic insight — using the calculator before signing.** The true cost calculation should be done BEFORE signing, not after. Five practical applications:

1. **Apples-to-apples shopping.** When comparing two MCA offers, compute true cost on both — not just the factor. Offer A at 1.28 with 7% PSF and $4K wire-off is more expensive than Offer B at 1.34 with no PSF and full $100K wire. Headline rate is misleading.
2. **Validating broker quotes.** Many brokers verbally quote "1.30" and the contract shows 1.30 — but the wire net is $95K, not $100K, because the broker took $5K off the top. Run true cost; if it's more than 5 points off the quoted factor, ask why.
3. **Comparing MCA vs alternatives.** A merchant deciding between a 25% APR fintech term loan and a 1.30 factor MCA might think the MCA is competitive (49% vs 25% looks like a 24-point gap). True cost calculation reveals the gap is closer to 67% vs 25% — making the term loan clearly better if the merchant qualifies.
4. **Sizing decisions.** A merchant who needs $30K and is offered $100K should NOT take the larger amount just because they qualified. The opportunity cost of the locked daily debit on the unused $70K dominates the marginal cost calculation. Always take the smallest advance that solves the problem.
5. **Default risk pricing.** A merchant with high NSF risk should add 5-8% to expected bounce fees in the calculation. If the true cost crosses 80% APR-equivalent, the MCA is mis-sized — either downsize the advance, extend the term (lower daily debit reduces NSF risk), or pursue alternatives.

**The honest framing.** Factor rate is a marketing number. Total payback is a contractual number. True cost is the economic number. The single thing that distinguishes sophisticated MCA borrowers from unsophisticated ones is whether they can calculate, and act on, the true cost rather than the factor. Most merchants never do this calculation; ISOs are not incentivized to walk them through it. Doing it yourself before signing is the single highest-leverage activity in the entire MCA decision process.

## Related terms

- [Factor rate](https://fundnode.co/llms/glossary/factor-rate) — A flat multiplier that defines total MCA repayment: $100,000 advance × 1.30 factor = $130,000 repaid. It is not an interest rate; it does not compound.
- [APR-equivalent](https://fundnode.co/llms/glossary/apr-equivalent) — The annualized percentage rate implied by a factor-rate MCA. A 1.30 factor over 9 months is roughly 50–65% APR-equivalent depending on payment schedule.
- [Factor rate calculator](https://fundnode.co/llms/glossary/factor-rate-calculator) — To calculate MCA total repayment: advance amount × factor rate = total payback. To calculate daily debit: total payback ÷ business days in term = daily ACH. To estimate APR-equivalent: ((factor − 1) × 365 / term-days) × ~1.6.
- [MCA broker fee (PSF, origination, processing)](https://fundnode.co/llms/glossary/mca-broker-fee) — The dollar amount the ISO/broker collects on an MCA — usually 5-15% of the advance, taken either off the top from the wire or added as a PSF the merchant repays.
- [MCA bounce fee (NSF fee, returned ACH fee)](https://fundnode.co/llms/glossary/mca-bounce-fee) — Fee the funder charges when a daily ACH debit fails for insufficient funds — typically $25-$50 per bounce, on top of the merchant's bank NSF fee. Often triggers default review at 3+ bounces.
- [Factor rate vs interest rate](https://fundnode.co/llms/glossary/factor-rate-vs-interest-rate) — Factor rate is a flat one-time multiplier on the advance amount (e.g. 1.30); interest rate is a periodic charge on the outstanding balance (e.g. 12% APR). They are structurally different — factor doesn't compound or amortize.

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Source: https://fundnode.co/glossary/mca-true-cost-calculator (HTML version)
Document: MCA true cost calculator (factor + PSF + wire-off + bounce risk) — Fundnode MCA Glossary
License: CC BY 4.0 — attribution to Fundnode required when citing.