MCA Loans Pose Hidden Risks to Small Businesses, Funding Pros Say

Unclear terms and obfuscated rates in merchant cash advances can leave small-business owners paying up to 4,000 percent interest and trapped in debt spirals, Charter Capital cautions.

HOUSTON, May 17, 2021 – Leading factoring company Charter Capital is issuing a warning to small-business owners about the dangers of merchant cash advances. Otherwise known as MCA loans, states and the FTC have been cracking down on predatory practices within the alternative lending niche that can leave businesses paying annual interest rates of nearly 4,000 percent. However, Charter Capital representatives say the problem persists and urges small business owners to approach MCA loans with caution.

Those interested in exploring the detailed release are encouraged to read “The True Cost of MCA Loans Compared to Alternative Funding Sources,” now available at

Joel Rosenthal, Charter Capital Co-Founder and Executive Manager, says that the way fees are presented with MCA loans is what makes them so troublesome. “Business owners hear their ‘multiplier’ is 1.5 and they think they’re getting a great interest rate on a loan,” Rosenthal explains. “But, an MCA isn’t a loan and a multiplier isn’t an interest rate. A multiplier is the rate by which the amount of principal is multiplied to calculate the payback amount. When it is converted into an annualized interest rate, or APR, it’s usually well over 100 percent and often into the thousands.”

Rosenthal says this is only the tip of the iceberg for business owners because MCA lenders typically scrape payments off the top of a business’ credit card income as a percentage of the processed payments. That can make it hard to predict income and expenses. Moreover, because MCAs are structured differently, there’s rarely any benefit to early repayment.

“Oftentimes, business owners don’t realize how their deal is structured until the money is coming out of their income. By then, it’s too late,” Rosenthal laments. “They may not be left with enough income to cover their expenses and can easily get caught up in a debt spiral while tapping into additional working capital solutions to make ends meet.”

Thankfully, small-business owners who don’t qualify for traditional bank loans still have options beyond MCAs, says Rosenthal. For example, some point-of-sale providers offer advances with more flexibility and reduced fees for early payoff. Invoice factoring, or advances on unpaid invoices, is also a good alternative to MCAs for those in the B2B sector.

Those interested in exploring factoring or obtaining a free rate quote may do so at

About Charter Capital

Headquartered in Houston, Texas, Charter Capital has been a leading provider of flexible funding solutions for the B2B sector for more than 20 years. Competitive rates, a fast approval process, and same-day funding help businesses across various industries secure the working capital necessary to manage daily needs and grow. To learn more, visit

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