MCAs come with risks and stipulations every business should consider. After all, no bag of money comes without strings attached. Refer once again to Figure __ for a summary of these financing hazards.

We start with the cost of capital. The fast access to cash usually comes at an exponentially higher cost burden than that of traditional debt financing. Sadly, even when the business owner knows up front the advance amount and factor rate, he or she may not comprehend the true cost of the financing.

To assess an MCA’s true cost of capital, convert the payments to an implied annual percentage rate (APR). Implied APRs for MCAs can range in the high double digits (in many cases over 50 percent) or even to triple digits (as high as 200 percent or more).

The business owner may not know how much he or she is paying until it’s too late to pull back. If sales fall below a certain threshold, businesses can get themselves quite exposed. Regrettably, MCAs can potentially create a snowbank of obligations which can lead to an avalanche.

MCA contracts themselves can be complicated, intrusive instruments often with unfamiliar, unconventional language, and sometimes hide or disguise their imputed APR amounts. Borrowers may be asked to sign confessions of judgement which waives their rights to defend their business if taken to court. Cloaked in desperation to get funded, business owners often make little time to read the fine print.