Not every MCA is predatory. But the industry’s structure — unregulated products, commissioned brokers, vulnerable borrowers, and opaque terms — creates conditions where predatory practices flourish. Recognizing them before you sign is the most effective protection.
Predatory MCA practices are those that exploit the borrower’s limited understanding, limited alternatives, or financial distress to impose terms that are unreasonable, deceptive, or designed to trap the borrower in a cycle of escalating obligations. Not every expensive product is predatory. An MCA with a high but transparent cost, clearly disclosed terms, and a functioning reconciliation clause may be expensive but not predatory. The line is crossed when the funder or broker uses deception, concealment, or coercion to impose terms the borrower would not accept if fully informed.
Cost Concealment
The most common predatory practice is the concealment of the true cost. The broker quotes the factor rate and the daily payment. The broker does not quote the effective APR. The broker does not compare the cost to alternative products. The broker does not explain how the daily repayment of principal increases the effective cost above what the factor rate suggests. The business owner signs believing the cost is 35% when the effective APR is 180%. The concealment is not accidental. It is the business model.
Cost concealment also occurs through the omission of fees buried in the agreement. Origination fees, ACH processing fees, administrative fees, early payoff penalties, and default charges may be specified in the contract but not mentioned in the sales conversation. These fees increase the total cost above the headline factor rate. The business owner discovers them on the bank statement, not in the sales pitch.
Non-Functional Reconciliation
A reconciliation clause that exists on paper but cannot be exercised in practice is a deceptive provision. The clause tells the borrower that payments will adjust with revenue. The funder’s actual behavior tells a different story. Reconciliation requests are denied, delayed, burdened with impossible documentation requirements, or simply ignored. The clause serves a legal purpose — maintaining the fiction that the transaction is a purchase — without serving an economic purpose for the borrower.
The non-functional reconciliation clause is predatory because it deceives the borrower about the nature of the obligation. The borrower believes the payment will flex. It does not. The borrower relies on the clause when revenue drops. The clause does not function. The borrower is trapped in a fixed-payment obligation that was sold as a flexible one.
Stacking Encouragement
A broker who contacts a business with an existing MCA and offers a second advance without evaluating whether the combined daily obligation is sustainable is engaging in a predatory practice. The broker knows the business is already under MCA pressure. The broker knows the second advance will increase the daily drain. The broker earns a commission on the second advance regardless. The encouragement to stack is not advice. It is a transaction that benefits the broker at the borrower’s expense.