How MCA Rates Work in Canada
Unlike traditional loans that use compounding interest rates (APR), Merchant Cash Advances (MCAs) use fixed factor rates. A factor rate is a flat multiplier applied to the advance amount to determine the total repayment fee upfront. Once agreed upon, this rate does not fluctuate.
Typical Factor Rate Ranges
In Canada, factor rates typically range from 1.15 to 1.38. The rate you qualify for depends on several underwriting parameters:
- Industry Risk: Lower risk sectors (like medical or manufacturing) qualify for lower factor rates.
- Deposit Consistency: Businesses with stable daily cash balances and fewer NSF items secure better terms.
- Time in Business: Operating history over 2 years unlocks preferred pricing.
Example of Total Repayment
If you receive a $50,000 cash advance at a 1.20 factor rate:
- Total Repayment: $60,000 ($50,000 x 1.20)
- Total Cost of Capital: $10,000
- Holdback Percentage: Typically 10% to 15% of your daily card sales or deposits will be withheld until the $60,000 is fully repaid.
FSI
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