How MCA Brokers/ISOs Get Paid and Why That Matters to You

The person who sold you the advance was not working for you. They were working for a commission. The commission structure explains every recommendation they made and every alternative they did not mention.

Merchant cash advance brokers, also called independent sales organizations, or ISOs, earn a commission on every deal they close. The commission is paid by the funder, not by you, but that distinction is cosmetic. The commission is built into the cost of the advance. It is embedded in the factor rate. You paid for it with every daily withdrawal, whether you knew it or not.

The commission is calculated as a percentage of the funded amount, typically expressed in “points.” One point equals one percent. Commissions range from 1 to 12 points on a standard deal, though some deals carry commissions as high as 15 points or more. On a $100,000 advance at 10 points, the broker earned $10,000 the day you signed. That money came from the funder’s margin, and the funder recovered it by charging you a higher factor rate than the deal would have carried without the broker’s involvement.

The Incentive Misalignment

The broker does not earn more when you get better terms. The broker earns more when you take a larger advance at a higher factor rate. The incentive structure is the inverse of yours. You want the smallest advance necessary at the lowest cost. The broker wants the largest advance possible at the highest cost the market will bear.

A factor rate of 1.35 on $100,000 means you repay $135,000. A factor rate of 1.45 on $100,000 means you repay $145,000. The difference is $10,000. A portion of that difference flows to the broker as additional commission. The broker who steers you toward the 1.45 rate earns more than the broker who finds you the 1.35 rate. There is no regulatory requirement for the broker to disclose the commission amount, the alternative rates available, or the existence of less expensive products.

You were not advised by a fiduciary. You were sold a product by a commissioned salesperson whose income was directly proportional to your cost. This is not illegal in itself. But it creates a dynamic that every business owner should understand before evaluating the terms they were offered.

Stacking and Renewals

Some brokers earn renewal commissions when you refinance or stack a second advance on top of the first. This creates an incentive to contact you before the first advance is fully repaid and recommend a new one. The recommendation is not based on your financial position. It is based on the renewal window, the point at which you have repaid enough of the first advance that a new advance can be layered on top.

The broker may frame the renewal as a consolidation. Pay off the balance of the first advance with the second, receive additional working capital, simplify your payments. The framing omits the fact that the new advance carries a new factor rate on the full amount, including the portion used to retire the old balance. You are paying a premium to refinance a premium. The broker earns a new commission on the full funded amount.