Commissions Are Paid by the Funder, Not Separately by You — but You Pay Them Anyway
The standard explanation brokers offer is that their commission comes from the funder, not from the merchant. That is technically accurate. It is also incomplete. Funders recoup that commission by assigning merchants a higher factor rate than the funder’s floor. A business that might have qualified for a 1.28 factor rate receives a 1.38 instead. The broker’s commission is funded by the spread between those two numbers, and the merchant pays it across every collection cycle until the advance is satisfied.
This structure is not illegal. In most states it is not even required to be disclosed. But it is the primary mechanism by which broker compensation is concealed within MCA pricing, and understanding it is the starting point for evaluating whether you were dealt with fairly.
Commissions Can Reach 15% of the Funded Amount
Industry participants have reported commissions as high as 15 points on funded transactions. On a $100,000 advance, that is $15,000 to the broker, recovered through the factor rate markup the merchant pays over the repayment term. Some brokers operate at lower margins, particularly those working with established clients or institutional funders with tighter rate floors. The range, however, is wide, and the merchant has no visibility into where their transaction falls within it.
Renewal commissions compound the issue. When a broker advises a merchant to renew or refinance a position that is halfway through repayment, a new commission is generated on the new funded amount. The merchant, who may have had a legitimate need to access additional capital, also carries the cost of a second origination event that primarily benefits the broker.
The Factor Rate Markup Is the Commission Vehicle
A broker who presents you with a term sheet at 1.45 when the funder’s floor was 1.32 has effectively charged you a commission of 13 points. That charge appears nowhere on the document as a commission. It appears as pricing.
Funders typically provide brokers with a rate floor and allow the broker to mark up within a defined range before presenting terms to the merchant. That range can extend to 10 or more points above the floor in some programs. The broker retains the spread as compensation. Nothing on the term sheet, the purchase agreement, or the closing disclosure in jurisdictions that lack mandatory broker compensation disclosure requirements obligates the broker to reveal the floor, the ceiling, or the markup they chose.
New York and Connecticut Now Require Broker Compensation Disclosure
New York’s Commercial Finance Disclosure Law, operative since August 2023, requires that where a broker is involved in an MCA transaction, the funder must inform the merchant in writing of how and by whom the broker will be compensated. Connecticut’s commercial financing disclosure statute, effective July 1, 2024, imposes similar requirements and mandates that providers disclose the specific dollar amount of broker compensation. These are meaningful developments. They are also limited in geographic reach, and transactions structured in other states retain the pre-disclosure regime.
Missouri joined those states in February 2025 with its Commercial Financing Disclosure Law, which requires broker registration and disclosure. Texas is advancing comparable legislation. The trend toward disclosure is clear, but the pace of adoption means that millions of transactions already executed occurred without any mandatory disclosure of broker compensation to the merchant.
ISO Agreements Between Brokers and Funders Are Not Shared With Merchants
The contractual relationship between a broker and a funder is governed by an ISO (Independent Sales Organization) agreement. That agreement specifies commission schedules, rate floors, deal flow requirements, and exclusivity arrangements. Merchants are not parties to that agreement and have no legal right to review it in the absence of litigation or regulatory process. The ISO agreement is the document that would answer the questions a merchant would most want answered before accepting terms.
Stacking Arrangements Can Double Commission Exposure
Stacking refers to the practice of placing multiple MCA positions on the same merchant simultaneously. A broker who arranges two positions from two funders earns a commission on each. The merchant, meanwhile, is servicing two factor rates, two repayment schedules, and potentially two sets of origination fees. Some ISO agreements prohibit stacking; many do not. The FTC’s October 2023 enforcement action resulting in a permanent ban against an MCA operator cited, among other things, undisclosed fee arrangements and predatory stacking practices as elements of the conduct at issue.
Commission Disputes Can Be Part of a Larger Legal Challenge
If a merchant pursues litigation challenging the enforceability of an MCA agreement, broker compensation practices become relevant in several ways. Where a broker owed fiduciary or quasi-fiduciary duties to the merchant and concealed material compensation, that concealment may support claims for fraud, breach of duty, or rescission of the agreement. Where the broker’s markup inflated the effective cost of the advance to a level that supports a usury theory, the commission structure becomes evidence in the loan-versus-purchase analysis.
Courts in the Southern District of New York have been the primary forum for MCA litigation, and the question of how courts characterize these transactions continues to evolve. The New York Attorney General’s ongoing enforcement activity, including a complaint filed against Yellowstone Capital in March 2024, has further developed the factual record on which courts will draw in future cases involving broker compensation and fee concealment.
What to Do If You Believe Your Broker’s Compensation Was Not Disclosed
Request a complete copy of your agreement, all closing disclosures, and any term sheets provided by the broker before funding. Ask the funder directly what rate floor applied to your transaction. If the spread between the floor and your stated factor rate is substantial, and if that spread was not disclosed to you as compensation, you have a factual predicate for further inquiry. Whether that predicate supports a legal claim depends on the jurisdiction, the terms of the agreement, and the specific conduct of the broker.
Counsel familiar with MCA agreements can evaluate whether the compensation structure in your transaction fell within or outside the disclosure requirements applicable at the time of funding. That conversation is worth having before you decide whether to challenge the agreement, seek a negotiated resolution, or proceed with repayment.
A first call costs nothing and assumes nothing. If your broker’s compensation was not disclosed, that fact may matter to the outcome of your situation.
