The broker called it a renewal. The funder called it a top-up. The contract called it a new purchase agreement. What it actually was: a refinancing at a higher effective cost than the original advance, disguised as additional working capital.
MCA renewals and top-ups are the industry’s most reliable revenue mechanism. When a business has repaid a portion of its existing advance, the funder or broker contacts the business owner with an offer: pay off the remaining balance on the current MCA and receive additional funds, all through a new agreement. The pitch is framed as a benefit — more capital, a fresh start, simplified payments. The reality is that the business is refinancing the unpaid balance at a new factor rate and paying a premium on money it has already been charged for.
The mechanics are straightforward but the cost implications are not. Suppose the business took a $100,000 advance at a 1.40 factor rate, obligating it to repay $140,000. After six months, the business has repaid $80,000, leaving a remaining balance of $60,000. The broker offers a renewal: a new $120,000 advance at a 1.35 factor rate. Of the $120,000, $60,000 pays off the existing balance. The business receives $60,000 in new working capital. The total repayment obligation on the new advance is $162,000.
The business received $60,000 in new money. The total new obligation is $162,000. After subtracting the $60,000 payoff of the old balance, the business is paying $102,000 for $60,000 in new capital — an effective cost of 70% on the net new funds, repaid over another six to twelve months through daily withdrawals. The factor rate of 1.35 looks reasonable in isolation. The effective cost on the net new capital is devastating.
Why Renewals Are More Expensive Than They Appear
The cost inflation occurs because the factor rate applies to the full funded amount, not to the net new capital. The $60,000 payoff of the old balance is treated as funded capital, and the funder charges the factor rate on that amount even though the business never receives it. The business is paying the funder’s fee to refinance the funder’s own receivable. The broker also earns a commission on the full funded amount, including the payoff portion. The broker’s incentive is to encourage renewals as frequently as possible, because each renewal generates a new commission on the full amount regardless of how much is net new capital.
The compounding effect of serial renewals is where the true cost becomes catastrophic. A business that renews three times over eighteen months may have received $150,000 in total net new capital but obligated itself to repay $350,000 or more. Each renewal layer adds cost on top of cost. The business is not just paying for the money it received. It is paying for the privilege of refinancing the previous layer’s unpaid balance, repeatedly, at escalating effective rates.
Top-Ups: The Same Problem With a Different Name
A top-up is a renewal in which the new advance is larger than the payoff amount, providing additional working capital on top of the refinancing. The framing is different — the business is told it is receiving more money, not just rolling over the old balance — but the economics are identical. The factor rate applies to the full funded amount. The effective cost on the net new capital is higher than the stated rate suggests. The broker earns a full commission.
Some funders offer top-ups automatically when the business has repaid a specified percentage of the original advance — typically 50% to 70%. The outreach is proactive. The funder contacts the business before the business requests anything. The timing is calculated: the business is still in the repayment period, still feeling the cash flow pressure of the daily withdrawal, and still receptive to the promise of additional capital.
How to Evaluate a Renewal or Top-Up Offer
Before accepting any renewal or top-up, calculate the net new capital — the total funded amount minus the payoff of the existing balance. Then calculate the total repayment on the new advance. Subtract the net new capital from the total repayment. The difference is the true cost. Divide the true cost by the net new capital. The result is the effective cost percentage on the money you actually receive. If that percentage is higher than the original advance’s factor rate — and it almost always is — the renewal is more expensive than the original deal.
Then calculate the effective annual percentage rate on the net new capital using the daily payment amount and the estimated repayment period. Compare this rate to the cost of alternative financing — a business line of credit, an SBA loan, equipment financing, or invoice factoring. The comparison will almost always show that the renewal is the most expensive option available. The broker will not make this comparison for you. The broker’s commission depends on you not making it.
An attorney or financial advisor can evaluate the renewal offer in minutes and tell you whether it improves or worsens your financial position. The consultation costs a fraction of the effective premium you would pay on the renewal. It is the cheapest insurance available against the most expensive financing decision you can make.
For more on this topic, see Settling Multiple Stacked MCAs: Strategy and Prioritization.
How to Evaluate an MCA Offer Before You Sign
The offer arrives with a sense of urgency. The approval was fast. The terms fit on one page. The agreement is forty pages. The gap between the one-page summary and the forty-page contract is where the cost hides.