Funders sell merchant cash advances on a single number: the factor rate. 1.4 sounds like 40% — annoying, but containable. The trouble starts when you take the second advance to service the first, and then a third to handle both.
The first MCA: factor 1.4
A $100,000 advance at 1.4 means you owe the funder $140,000. The "term" is whatever number of holdback weeks gets the daily debit to a number the underwriter is willing to put on paper — typically 6–9 months. APR on a 9-month payback at 1.4 is roughly 110%. On a 6-month payback, it's closer to 200%.
The second MCA: paying off the first
Most stacked positions are taken because the first MCA's daily debit became unsustainable. The second advance — which has its own 1.4 factor — is partly used to retire the first. The owner sees a single payoff event; the funder books the gross value as new principal.
Effective cost on the second position once you back out the rolled portion is rarely below 90% APR and often clears 250%. We see this every week.
The third MCA: where math breaks
By the third position, the borrower is no longer underwriting working capital — they're funding the cost of capital itself. A $250K rolling stack at three positions of 1.4 factor compounds, in real terms, to an effective annual rate north of 350%. Daily debits become a structural drain on the business; the only way out is settlement.
Why this matters for settlement
The arithmetic gives you the negotiation. We routinely settle stacked positions at 30–45% of claimed balance because the funder knows the underlying numbers — and because court-tested usury and unconscionability defenses get harder to dismiss the higher the effective rate goes.
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