Your MCA Broker Is Paid to Sell You the Most Expensive Money Available

The broker found the money inside a week, returned every call, and sounded pleased for you. The commission, five figures of it, had already been folded into the price of the advance you are now straining to repay.

Funders pay MCA brokers at closing, a commission figured as a percentage of the funded amount, commonly between 1% and 15% depending on the size of the deal, the funder, and the standing of the broker who placed it. The money arrives whether or not the business can sustain the daily draft, and whether or not the owner ever understood what the advance would cost. You sign for the money and then you learn what the money costs. The commission was, if we are being exact, never shown to you as a number at all.

From that one payment term everything else follows. The broker earns more when the advance is larger, when the factor rate is higher, and when the file renews or stacks; the owner is served by the smallest advance, at the lowest cost, on terms that leave room to breathe. A broker in this market is not an adviser. He is a salesperson whose inventory happens to be debt.

How the Steering Works

Steering does not announce itself. When a business qualifies for a line of credit at 12% APR and for an advance carrying an effective rate near 150%, the line of credit pays the broker nothing, the advance pays five figures, and so the advance is what gets recommended, while the line of credit, in many of the files we have reviewed (the count is ours, not a census), never came up at all.

The arithmetic is managed. A broker quotes the factor rate instead of the APR, recites the daily payment instead of the total repayment, and measures the advance against your worst alternative rather than your best one. Brokers can price a file in minutes; the same speed never seems to attach to disclosure. The daily payment is presented as only $500. What goes unsaid is the rest of it: that repayment runs to $140,000 on a $100,000 advance, that the effective rate sits near 180%, and that a line of credit would have carried the same working capital at roughly one tenth of the cost.

And the renewal is where the relationship shows itself. Each top-up writes a new commission, so the call arrives before the current advance is even retired, timed the way mail from a magazine is timed, to the lapse of the subscription. Fresh capital is offered, and the outreach is framed as service. Whether the broker believes the renewal serves you, or has stopped asking the question, is not something the file will show. The effective cost of the net new money goes undiscussed, and so does the compounding.

No Duty of Loyalty

An MCA broker owes you no fiduciary duty. No duty of loyalty attaches, no duty to act in your interest, no duty to disclose the conflict sitting in the middle of the transaction. The obligations that bind mortgage brokers, investment advisers, and insurance agents stop short of this industry in most jurisdictions, so a broker can recommend the costliest product on the desk, omit every cheaper alternative, and collect a commission you paid without knowing you paid it, and no legal duty has been disturbed. There are brokers who resist all of this, though the structure is not kind to them. Most owners do not ask who pays the broker until the second advance. I understand why.