What Determines Your MCA Factor Rate (and Why Files Get Declined)
Your merchant cash advance factor rate is set mostly by your last three to four months of business bank statements. Underwriters look at average daily balance, the consistency and number of deposits, negative-balance days and returned items, existing advance payments, time in business, industry, and personal credit, roughly in that order of weight. A stronger file earns both a lower factor and a longer term. Files are most often declined for too many negative days, too much existing advance debt, revenue or time in business below the funder's minimum, or a position that was not disclosed.
The rep on the phone does not set your price. An underwriter does, from your statements, usually within a few hours of receiving them. Knowing what they read lets you predict the offer before it arrives, argue with it when it is off, and improve it if you have a few weeks. This is the same read our free MCA offer checker performs on the statements merchants send us.
The seven things underwriters read
| What they read | What looks strong | What raises the price |
|---|---|---|
| Average daily balance | A cushion that covers several days of the proposed payment | A balance that hovers near zero between deposits |
| Deposit consistency | Many deposits spread through the month, similar month to month | A few large lumps, or one big month between two weak ones |
| Negative days and returned items | None, or one or two explained | Several negative days a month, repeated NSF or returned ACH |
| Existing advance payments | No open positions | One or more daily or weekly debits already leaving the account |
| Time in business | Two years or more | Under a year |
| Industry | Trades and services with steady repeat revenue | Industries the funder restricts or considers volatile |
| Personal credit | No recent defaults, judgments, or tax liens | Recent serious delinquencies |
Notice what is not on the list: how urgently you need the money, how long you have known the broker, or how good your year is about to be. Underwriting is backward-looking and statement-driven. Personal credit matters less than most owners expect and bank activity matters more.
Why existing positions weigh so heavily
An underwriter adds the payment being proposed to every advance payment already coming out of the account, then compares the total to your deposits. Once the combined payments pass roughly 15 to 20 percent of monthly deposits, most first-position funders will not add to the load, and the funders who will are pricing for the risk that the account runs dry. That is why second and third positions come with higher factors and shorter terms. Our stacking guide shows what that does to cash flow.
What each grade pays
A weaker file is charged twice: a higher factor rate and a shorter term. Both push the yearly cost up together. The table shows a $40,000 first-position advance at a representative point in each grade's typical range, with daily payments and no fees. Approximate APR is computed from the payment schedule. These are illustrations of how the pricing scales, not quotes.
| Grade | Factor and term | Total payback | Daily payment | Approx. APR |
|---|---|---|---|---|
| A | 1.22 over 12 months | $48,800 | About $194 | ~41% |
| B | 1.30 over 9 months | $52,000 | About $275 | ~73% |
| C | 1.38 over 6 months | $55,200 | About $438 | ~136% |
| D | 1.45 over 4 months | $58,000 | About $690 | ~237% |
The gap in dollars between an A and a D is $9,200. The gap in the daily payment is larger in practice: $194 against $690, for the same $40,000. That is why the grade matters more than the headline rate, and why an offer priced a grade too low is worth challenging. Our fairness check has the full ranges by grade.
Why files get declined
- Too many negative days. Frequent overdrafts tell the underwriter a daily debit will bounce. This is the most common decline on otherwise healthy revenue.
- Too much existing advance debt. The combined payment would take more of your deposits than the funder's limit.
- Below the minimums. Many funders set a floor for monthly deposits and time in business, commonly somewhere around $10,000 to $15,000 a month and six months to a year. Floors vary by funder.
- An undisclosed position. The debit shows up in the statements after the application said there was none. Many funders stop there.
- Deposits that are not revenue. Transfers between your own accounts, loan proceeds, and owner contributions are subtracted. Revenue that looked like $60,000 becomes $38,000.
- Statements that do not reconcile. Missing pages, ending balances that do not match the next month's opening balance, or any sign of editing. Altered statements end the conversation permanently.
- A recent default or an open judgment or tax lien, on the business or the owner.
- A restricted industry. Each funder keeps its own list. A decline for this reason says nothing about your file elsewhere.
What you can improve in 60 to 90 days
- Stop the negative days. Keep a buffer in the operating account, even a small one, and move autopays to dates after your deposits land. Two clean months change the grade more than anything else.
- Run all revenue through one business account. Deposits scattered across personal and business accounts cannot be counted.
- Deposit more often. Daily or twice-weekly deposits read as consistency. One large deposit a month reads as lumpy, even at the same total.
- Pay down or pay off an existing position before applying, if you can. Removing one debit improves both the grade and the payment capacity.
- Disclose everything up front. A position the funder hears about from you gets priced. One it discovers gets declined.
- Apply to two or three funders, not ten. Each application can generate credit inquiries and a flood of calls, and the offers come back priced for whichever grade was assumed fastest.
If the timeline allows, waiting two clean months and then asking again is often the cheapest thing you can do. And once you know which grade your file earns, you can negotiate from it; our negotiation guide covers how.
Find out what grade your file earns
Send three months of business bank statements, and the offer if you have one. We read them the way an underwriter does and tell you the grade, what terms that grade typically commands, and the specific things holding it back. Free and confidential.
How this guide was produced. Written by the team that built our statement-reading underwriting engine. Cost figures are computed from cash-flow math (IRR on the actual payment schedule), not quoted from marketing pages. Nothing here is legal or financial advice.
Questions readers ask
What determines the factor rate for my merchant cash advance?
Mostly your recent business bank statements: average daily balance, how consistent your deposits are, the number of negative-balance days, and any existing advance payments. Time in business, industry, and personal credit adjust the price further. A stronger file earns a lower factor and a longer term at the same time.
Why would an MCA underwriter decline my file?
The most common reasons are frequent negative days or returned payments, existing advances that already take too large a share of deposits, monthly revenue or time in business below the funder's minimum, an advance that was not disclosed on the application, and statements that do not reconcile. Ask the funder for the specific reason.
Does my credit score affect my MCA factor rate?
Somewhat, but less than bank activity. Most funders check personal credit mainly for recent defaults, judgments, and liens. A merchant with average credit and clean, consistent statements usually prices better than one with strong credit and frequent overdrafts.
How can I get a lower factor rate?
Improve what the underwriter reads: eliminate negative days for two consecutive months, run all revenue through one business account, deposit frequently, pay off an existing position, and disclose everything. Then bring a competing offer. Asking for a longer term is often an easier win than a lower factor.
Keep reading
- Is My Merchant Cash Advance Offer Fair? How to Check in 10 MinutesHolding an MCA offer? Here is how to tell whether it is fair: the five numbers you need, the payment-capacity test, typical factor-rate ranges by file grade, and what to ask for before you sign.
- How to Negotiate a Merchant Cash Advance Offer (What Actually Moves)MCA offers are more negotiable than most merchants think. What funders will move on (term, fees, payment frequency, prepayment discounts, contract clauses), what gives you leverage, and the three sentences that get results.
- Stacking Merchant Cash Advances: What a Second Position Really Does to Your Cash FlowTaking a second merchant cash advance on top of the first? A worked example shows the combined payment jumping from 12.7% to 23.3% of deposits, why second positions cost more, the contract clause most merchants breach, and the alternatives.