The MCA industry relies heavily on brokers — independent salespeople or firms that connect business owners with funding companies. Some brokers provide genuine value by helping you navigate options and find the best deal. Others are primarily motivated by their commission structure, which may not align with your best interest.
Understanding how broker compensation works is essential for protecting yourself. Most MCA brokers earn commission in one of two ways: points on the deal or a spread on the factor rate. Points are a percentage of the total advance amount, typically 1 to 10 points (1% to 10%). On a $50,000 advance, 5 points equals $2,500 to the broker. The factor rate spread works differently — the funder offers a buy rate (say 1.25) and the broker marks it up to a sell rate (say 1.35). The difference funds the broker's commission.
Here is where the conflict of interest emerges. A broker earning percentage-based commission makes more money when you borrow more. If you need $30,000 but could qualify for $50,000, a broker earning 5 points makes $1,500 on the $30,000 deal but $2,500 on the $50,000 deal. There is a financial incentive to push you toward a larger advance than you need.
Similarly, brokers who earn a factor rate spread make more money when your factor rate is higher. If the funder's buy rate is 1.25, a broker could offer you 1.30 and earn a reasonable commission, or offer you 1.40 and earn a much larger commission. You would never know the difference unless you asked about the buy rate — and many business owners do not know to ask.
Some brokers also practice what is called shotgunning — submitting your application to 10, 15, or even 20 different funders simultaneously. This can trigger multiple credit inquiries and creates a perception in the industry that you are desperate for funding. Funders see multiple submissions and may offer worse terms as a result, or decline entirely. A responsible broker submits to a targeted selection of 3 to 5 funders most likely to offer competitive terms for your specific profile.
Another concern is the practice of encouraging unnecessary renewals or stacking. A broker earns a new commission every time you take a new advance. If your first MCA is 50% paid off, a broker might suggest refinancing into a new, larger advance — even if you do not need additional capital. Each refinance generates commission for the broker but adds cost for you. The payoff of the existing balance is rolled into the new deal, and the factor rate is applied to the entire new amount, including the payoff.
There are also brokers who engage in deal-steering — directing your application to funders that pay the highest commission rather than those offering the best terms for your situation. Funder A might offer you $50,000 at a 1.25 factor rate but only pay the broker 3 points. Funder B offers $50,000 at a 1.35 factor rate but pays the broker 8 points. The broker might present only Funder B's offer or frame it more favorably, costing you $5,000 more in fees.
How can you protect yourself? First, ask the broker directly how they are compensated. A legitimate broker will be transparent about their commission structure. If they dodge the question, that is telling.
Second, ask for the buy rate. If the broker is adding a spread to the factor rate, knowing the buy rate tells you how much of the cost is going to the broker. A spread of 2-5 points is normal. Anything above 8-10 points means you are significantly overpaying.
Third, request offers from multiple funders and compare them side by side. A good broker should present you with at least two or three options with clear explanations of the differences.
Fourth, ask if the broker has submitted your application to funders you did not approve. You should know where your financial information is being sent and how many inquiries are being generated.
Fifth, do some direct research. Check the funder's website to see if you can apply directly. Compare the terms you receive through the broker with what the funder advertises. The difference is often the broker's margin.
Sixth, be cautious of unsolicited calls. If a broker calls you out of the blue offering amazing funding terms, understand that they purchased your data from a lead generation company and their primary motivation is earning commission from your deal.
Not all brokers are problematic. Many provide genuine value — they understand the market, have relationships with funders, and can match your profile with the right product. The key is to work with brokers who are transparent about compensation, present multiple options, and genuinely seem interested in finding the right deal for your situation rather than the most profitable deal for themselves.