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Total cost of capital, counting the lines nobody quotes

A 1.28 factor on $100,000 that really costs $32,645 and 82 percent a year, plus the renewal roll that turns a quoted 1.30 into an effective 1.49.

6 minute readUpdated 2026-07-29Written by the Exp Capital desk

Total cost of capital is every dollar that leaves your business because you took the money, measured against every dollar that actually arrived. It is not the factor rate, it is not the interest rate, and on most working capital deals it is 15 to 25 percent higher than the number on the term sheet.

The gap is not usually hidden. It is just spread across five documents and three moments in time, which amounts to the same thing. This page puts all of it on one page, with a worked deal, and then covers the one line item that dwarfs all the others combined.

What belongs in the number

The rule is simple. If the dollar would not have moved had you declined the offer, it belongs in the total. That includes money taken before the wire, money added to each payment, and money that only shows up if something goes wrong.

The nine line items, and where each one hides
Line item	Typical size	When it hits
Factor or interest cost	The headline	Fixed at signing
Origination or packaging fee	1 to 5 percent of the funded amount	Deducted before the wire
Underwriting or documentation fee	$195 to $995	Deducted before the wire
Wire fee	$25 to $75	Deducted before the wire
UCC filing fee	$50 to $150	Deducted before the wire
ACH or transaction fee	$0 to $10 per payment	Added to every single payment
NSF or returned payment fee	$25 to $50 per event	Only when a debit fails, then repeatedly
Default or late fees	Varies widely	After a missed payment, often with acceleration
The renewal roll	Frequently the largest single cost	At 40 to 60 percent paid, by invitation

The worked deal, all in

A $100,000 approval at a 1.28 factor over 195 business days, which is about nine months. The debit is $656.41 per business day. This is a completely normal offer.

Every dollar that leaves the account on a $100,000 approval at 1.28

Off the top: 3 percent origination is $3,000, underwriting is $495, the wire is $50, and the UCC filing is $125. That is $3,670, so $96,330 reaches your account. On top of every payment sits a $5 ACH fee, which across 195 payments is another $975 that never appears on the term sheet at all.

Approval amount: $100,000
Cash that actually arrived: $96,330
Total payback at 1.28: $128,000
ACH fees across 195 payments: $975
Total leaving your account: $128,975
All in cost of capital: $32,645
As a share of cash received: 33.9 percent over nine months
Approximate APR: About 82 percent nominal

The headline said 28 percent. The real figure is 33.9 percent of what you received, and once you account for the fact that you repaid it steadily rather than at the end, it is roughly 82 percent a year. The conversion method is on factor rate to APR. Nothing here was concealed. It was simply never added up in one place.

The renewal roll, which costs more than everything above

Around the point where you have repaid half the advance, the phone rings with an offer to renew. More money, same relationship, easy paperwork. This is the most expensive transaction in this industry, and the arithmetic is worth doing once so you recognize it forever.

Say you are 130 payments into the 195. You have paid $85,333 and $42,667 remains. The renewal offer is $150,000 at a 1.30 factor. The old balance is paid off out of the new advance, and about $5,000 of fees comes off the top.

A renewal quoted at 1.30, priced against the new money it actually delivers

New cash reaching your account: $150,000 minus $42,667 minus $5,000, which is $102,333. New obligation: $195,000. But $42,667 of that was already owed, so the payback attributable to the new money is $195,000 minus $42,667, or $152,333.

Divide $152,333 by $102,333 and the effective factor on the new money is 1.49, not the 1.30 you were quoted. The gap is $19,300, and it exists because the unearned factor cost baked into that $42,667 balance gets refinanced and charged a factor a second time. You paid a factor on a factor.

What the money has to earn to be worth it

Cost of capital is only half the question. The other half is the hurdle rate: what the borrowed money must produce for the deal to have been a good idea. This is the calculation almost nobody runs, and it is the one that actually decides.

Our deal cost $32,645 over nine months. To break even, the use of funds has to generate that much in net profit inside the same window. Convert it to a revenue target using your net margin.

Incremental revenue needed within nine months to break even on $32,645 of cost
Your net margin	Revenue the money must generate	As a multiple of the $96,330 received
5 percent	$652,900	6.8 times
10 percent	$326,450	3.4 times
20 percent	$163,225	1.7 times
35 percent	$93,271	1.0 times
50 percent	$65,290	0.7 times

This table is why an advance works beautifully for a contractor buying materials for a job with a 35 percent margin, and destroys a distributor working on 5 percent. Same money, same price, completely different outcome. If you cannot name the revenue the money will produce and roughly when, read when not to borrow before you read another term sheet.

Expensive money is not a problem. Expensive money with no plan for what it earns is the whole problem.

How to lower it, in order of what actually works

Lengthen the term at the same price. More months at the same cost per month lowers the strain and, counterintuitively, the APR. It raises the total dollars, so decide using the comparison worksheet.
Negotiate the fee lines, not the factor. Origination, underwriting and wire fees move. The factor rarely does, because it comes out of a credit box rather than a price list.
Take ACH delivery instead of a wire. It removes the wire fee and usually costs you a few hours.
Ask what a $0 ACH fee version costs. Some funders price the per payment fee into the factor instead. On 195 payments that is $975 worth of negotiating.
Fix the statements before applying, not after. Two clean months of balances is worth more than every fee on this page combined. See average daily balance.
Get the early payoff discount in writing at signing. It costs nothing to ask before you sign and it cannot be added afterward.
Refuse the renewal roll unless the effective factor beats a fresh offer. Price both. It takes ten minutes and it is routinely the largest single saving available to you.
Do not stack. A second position on top of a first is priced for the risk of standing behind, and it multiplies the cost rather than adding to it. See stacking advances.

What we do with this

Exp Capital Solutions is a broker. We do not fund, price or approve anything, and we are paid out of the deals we place, which is exactly why the numbers on this page should be checked rather than trusted. What we do is write the all in figure on every offer we bring you: net proceeds, total leaving your account, all in cost in dollars, converted APR, and the hurdle revenue at your margin. When a renewal is on the table, we price it against a fresh submission and show you both, including the times the incumbent funder wins. And when the hurdle math says the money will not earn its cost, we say so, which is the one piece of advice in this business that never pays a commission.

Questions people actually ask

What is total cost of capital for a business loan?

It is every dollar that leaves your business because you took the money, measured against the cash that actually arrived. That includes the factor or interest cost, fees deducted before the wire, per payment ACH fees, any NSF or default fees, and the cost of any renewal that rolls an unpaid balance into a new deal.

How do I calculate the true cost of a merchant cash advance?

Add the total payback plus every per payment fee, then subtract the cash that actually hit your account after origination, underwriting, wire and UCC fees. On a $100,000 approval at a 1.28 factor with typical fees, that works out to $32,645, which is 33.9 percent of the $96,330 received, or roughly 82 percent a year.

Why is a renewal more expensive than a new advance?

Because the unpaid balance rolled into the new deal still contains unearned factor cost, and that cost gets charged a factor again. On a worked example here, a renewal quoted at a 1.30 factor delivered $102,333 of new cash against $152,333 of new payback, an effective factor of 1.49.

What is a hurdle rate and how do I use it?

It is the profit the borrowed money must generate to cover its own cost. Take the all in cost, then divide by your net margin to get the incremental revenue required. At $32,645 of cost and a 20 percent margin, the money has to produce $163,225 of new revenue inside the term. At a 5 percent margin it has to produce $652,900.

Are origination fees negotiable?

Frequently, yes, especially with a competing term sheet on the table. Underwriting and wire fees are often waived on request, and taking ACH delivery instead of a wire removes that fee entirely. The factor rate itself is rarely negotiable, because it is an output of the underwriting file rather than a rate card.

Do ACH fees really matter?

On a long term they add up quietly. A $5 per payment fee across 195 payments is $975 that never appeared on the term sheet, which is roughly a third of a typical origination fee. Ask whether a version with no per payment fee exists, since some funders simply price it into the factor instead.

Should I ever pay a broker fee on top of the funder's price?

Only if it is disclosed in writing before you sign and you can see what it buys. Most broker compensation on advances is built into the factor as the spread over the funder's buy rate, so an additional upfront fee on the same deal usually means you are paying twice. Ask both questions plainly.

Keep reading

Factor rate to APRHow the dollar cost becomes an annual rate.Comparing two offersThe worksheet that puts every structure on one line.Reading a term sheetWhere each of these fees appears, and where it does not.