Private lending is a loan with interest, a fixed term and usually collateral. An MCA is a purchase of future receivables at a discount, repaid daily or weekly with no fixed maturity date. MCA capital turns over far faster, but the return is measured by factor rate and collection speed rather than an interest rate.
Structural differences
- Loan with interest versus purchase of receivables at a discount.
- Monthly payments versus daily or weekly remittances.
- Fixed maturity versus repayment whenever the full amount owed is collected.
- Collateral and personal guarantees versus reliance on the merchant's cash flow.
How the return is measured
A private loan quotes an annual interest rate. An MCA quotes a factor rate — the multiple of the advance that is owed back. The same factor rate produces very different annualized returns depending on how quickly it is collected, which is why days to payoff matters as much as the rate itself.
Risk profile
MCA defaults tend to be more frequent but smaller, since capital is spread across many short deals and part of it is usually recovered before a merchant stops paying. Private lending concentrates more capital in fewer positions with recovery depending on collateral.
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More terms in the MCA glossary or run a deal through the MCA calculator.