The Fee Is Already Gone Before You See the Money
Origination fees in merchant cash advance agreements are deducted at funding, which means the amount deposited into your account is not the amount you agreed to repay. A business that accepts a $100,000 advance with a 3% origination fee receives $97,000. The repayment obligation, however, is calculated against the full $100,000. That gap is not a coincidence. It is a structural feature of how MCA products generate revenue at the front end of a transaction.
Most brokers do not explain this at the point of sale. The disclosure, where it exists at all, appears in paragraph eighteen of a forty-page agreement, expressed as a reduction to the funded amount rather than as a fee. By the time the wire arrives, the question of what was charged has already been answered without your having asked it.
Origination Fees Are Not the Same as the Factor Rate
The factor rate is the multiplier applied to the advance to determine total repayment. The origination fee is a separate charge, deducted before repayment calculations begin. These are two distinct revenue streams, and the broker may collect a portion of one while the funder retains the other. In some agreements, both the factor rate and the origination fee are negotiable. Brokers rarely raise the subject of negotiation.
When the New York Attorney General secured a judgment against Richmond Capital Group and its affiliates in February 2024, one element of the case involved fees that were charged against businesses without adequate disclosure of how those fees related to the total cost of the advance. The judgment confirmed what practitioners in this space had observed for years: the gap between what a business believes it is paying and what it actually pays is not accidental.
The Broker’s Commission Comes Out of the Same Pool
A broker who tells you the origination fee goes entirely to the funder may be technically correct. What that broker is less likely to mention is that their commission was baked into the factor rate before the term sheet was ever sent to you.
Broker compensation in MCA transactions operates through multiple channels. A direct commission is one. A yield spread, where the broker presents you with a factor rate higher than the funder’s floor and retains the difference, is another. The origination fee itself, in some arrangements, is split between the funder and the originating broker. None of these arrangements requires separate disclosure under federal law, because MCAs are purchase agreements rather than loans and therefore fall outside the Truth in Lending Act’s requirements.
Connecticut’s commercial financing disclosure law, which took effect July 1, 2024, now requires providers to disclose how much brokers will earn from a transaction. New York’s Commercial Finance Disclosure Law, operative since August 2023, imposes similar requirements. Outside of those jurisdictions, and a small number of states that have enacted analogous statutes, the broker’s compensation remains private unless you ask and they answer honestly.
Underwriting Fees and Origination Fees Are Sometimes the Same Charge
MCA contracts use inconsistent terminology. What one funder calls an origination fee, another labels as an underwriting fee, an administrative fee, or a processing charge. The practical effect is identical: the amount is deducted from the advance before disbursement. The semantic variation is not merely sloppy drafting. It creates confusion that tends to benefit the party charging the fee.
A business reviewing its agreement for origination fee disclosure may not find the term. The fee may appear under a different heading. This is one of the structural ambiguities that courts in the Southern District of New York have encountered in MCA litigation, where the characterization of a charge as a fee versus a cost-of-capital component can affect how the agreement is analyzed under usury law.
The question of whether a given MCA is a purchase agreement or a disguised loan turns in part on how the economics are structured. Fees that are deducted upfront, fixed in amount, and not reconcilable against actual collections resemble loan origination charges more than they resemble the costs of a contingent revenue purchase.
You May Have Legal Recourse If the Fees Were Not Properly Disclosed
Several states now impose affirmative disclosure obligations on MCA providers and brokers. Missouri’s commercial financing disclosure statute came into effect in February 2025 and requires brokers to register with the state. New York and California have had operative disclosure regimes for longer. Where a funder or broker failed to disclose the origination fee in a form that complied with state law, that failure may constitute grounds for challenging the agreement or the enforceability of certain terms.
Beyond disclosure statutes, there is the question of common law fraud and breach of fiduciary duty. A broker who has a duty to act in your interest and conceals a fee that reduces the value of the advance may have exposure on those theories. The analysis is fact-specific, and the outcome turns on the relationship between the broker and the business, the terms of any engagement letter, and the jurisdiction’s treatment of broker obligations in commercial transactions.
This is not a hypothetical concern. The FTC’s enforcement action against a merchant cash advance operator in October 2023, which resulted in a permanent ban, arose in part from the concealment of fees and the misrepresentation of advance terms to small business owners. Federal and state regulators have both demonstrated a willingness to pursue MCA participants who obscure the true cost of their products.
If your advance included fees you were not told about, or if your broker’s compensation was never disclosed in a form you could evaluate, those facts are worth examining. A first call with counsel costs nothing and assumes nothing.
