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. How the effective rate bears on any legal defense is a separate question that a licensed attorney would assess.
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