SBA vs MCA — the real cost compared (with the actual math)

SBA 7(a) loans carry a guaranty fee (paid by the borrower or the lender, often passed through): 0% on loans ≤ $1M for fiscal year 2024+, then tiered fees above that. Lender fees (packaging, closing, documentation) typically add 1–3% of the loan amount. The all-in APR is usually 50–100 basis points above the note rate.

A 1.30 factor over 9 months is roughly 40% simple-cost APR and ~80% effective APR (fixed-daily debit). The simple-cost APR is the vendor-quoted comparable number; the effective APR is the apples-to-apples comparison to a term loan, because the borrower is paying down principal as you go and is financing a shrinking balance at the same total factor.

When (1) timing matters more than cost — a closeable opportunity inside 1–2 weeks that won't survive a 60–120-day SBA process, (2) the borrower has no collateral and recent credit issues but strong daily deposits, (3) the use case is short-term cash flow that will be repaid from the same revenue the funder is debiting (inventory turn, seasonal ramp). MCAs are NOT for: long-term assets, equipment, real estate, or anything that won't pay back inside 6–12 months.

SBA Express loans cap at $500,000, carry a 50% guarantee (vs 75–85% on standard 7(a)), and are designed for faster underwriting — often 30–45 days vs 60–120 for standard 7(a). The rate runs slightly higher because of the lower guarantee, but they're often the fastest SBA option for smaller working-capital needs.

Yes, and it often makes financial sense. SBA 7(a) explicitly permits MCA refinance if the borrower can document that the MCA was used for a legitimate business purpose AND the refinance produces material monthly cash flow improvement (the SBA requires 10%+ payment reduction in most cases). Underwriting still requires meeting standard SBA credit, collateral, and operating-history thresholds.

Stacking is taking a second (or third) MCA on top of an existing one. Each new advance debits the same daily revenue, so total daily debits can quickly exceed daily cash inflows. Stacking is the #1 driver of MCA-related business failures because the cumulative effective APR can reach 200%+ and the cash flow math breaks before the operator notices. Most SBA refi programs require unwinding stacked positions as a condition of funding.

Total payback on an MCA is fixed at funding (advance × factor) regardless of when you pay it off. So prepayment doesn't 'save' money in the traditional sense — you owe the same total. A small number of funders offer early-payoff tiered discounts; read the agreement before assuming prepayment helps. SBA loans typically have no prepayment penalty after the first few years.

SBA microloans are up to $50,000 (avg ~$13,000), originated through SBA-approved nonprofit intermediaries, with rates typically 8–13% and terms up to 6 years. They're slower than MCAs and require more documentation, but the cost is a fraction of MCA pricing for the right use case (small inventory, equipment, startup costs).

Most SBA 7(a) lenders require 24+ months of operating history. SBA Express sometimes accepts 12+ months for strong files. Below 12 months, SBA is generally not an option — alternative products (working capital loans, equipment financing, MCAs) become the realistic comparison set. Don't compare to SBA if SBA isn't on the table for your file.

Federally, no — MCAs are legally structured as the purchase of future receivables, not loans, so the Truth in Lending Act doesn't apply. State-level: California (SB 1235), New York (S5470B), Virginia, Utah, and Georgia have enacted commercial-finance disclosure laws that require APR-equivalent disclosure on MCAs in those states. Always demand the APR-equivalent in writing — and convert the factor yourself if the funder won't.

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