Fixed Fee: Meaning in a Merchant Cash Advance
A fixed fee is a financing cost set as one dollar amount at the start, instead of interest that grows with time. A merchant cash advance works on a fixed fee basis, since the total payback is set on day one.
What does fixed fee mean?
Most people think about borrowing in terms of interest. The longer you keep the money, the more you owe. A fixed fee flips that. The cost is decided up front and stays the same whether you pay it back quickly or slowly. The factor rate on an MCA is really a way of expressing that fixed fee as a multiplier.
Why does fixed fee matter to your business?
It changes how you should think about speed. With interest, paying early saves money. With a fixed fee, paying early usually doesn't, unless there's an early payoff discount. And because the cost doesn't depend on time, the annual percentage rate of a fixed fee looks very high when the term is short. That's why estimated APR numbers on short advances can shock owners even when the dollar cost is what they expected.
What happens to a fixed fee when the term changes?
On an advance tied to your sales, the dollar cost stays fixed while the time it takes to pay shifts with your revenue. Slower sales stretch the term without raising the total. That's a real difference from interest, where a longer stretch always means paying more.
Where will you see it?
In how the offer is framed. Revenue-based financing and some short business loans are priced this way too, often as a fee or a total repayment amount rather than a rate.
Which terms are related to fixed fee?
The full list is in the glossary. Owners ask about this in Is an MCA factor rate monthly or for the whole advance?.
A term on your offer you don't recognize?
Send us the line and we'll tell you what it means. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.