How funding brokers are paid —
and what it costs you.

Independent Sales Organizations — almost always called ISOs in the industry, and referred to as "brokers" everywhere else — sit between the small business borrower and the funder writing the check. They source the lead, package the file, shop it to lender platforms, and earn a commission when the deal funds. There is nothing inherently wrong with that role; it exists in mortgage, insurance, and equipment finance just as much as it does in small business funding. What is different about the MCA and revenue-based financing space is that the compensation is almost never shown on the contract, and the spread between the cheapest and most expensive channels for the same merchant can be substantial.

The standard commission band: 4% to 10%

The mainstream commission band for an ISO placing a merchant cash advance with a direct funder is 4% to 10% of the gross advance amount, paid in cash on funding day. On a $50,000 advance, that's $2,000 to $5,000 wired to the broker the same day the merchant receives funds. The exact percentage depends on the lender platform's published commission grid, the deal's risk profile, the broker's tier status with that lender, and any "override" or "stack" arrangements layered on top.

Mainstream lenders publish commission grids the same way insurance carriers publish agent commission schedules. A typical grid might pay 6% on advances under $50,000, 8% on $50,000 to $150,000, and 10% on $150,000 and up, with adjustments for term length and credit grade. The grids are not secret in the industry; they're emailed to ISOs every quarter. They are, however, almost never shown to merchants.

A second compensation layer is the "buy rate" structure. Some funders quote the ISO a wholesale factor rate and let the broker mark it up to the merchant, pocketing the difference. A funder might offer a 1.28 buy rate; the broker quotes 1.38 to the merchant; the 0.10 spread on a $50,000 advance equals $5,000 of broker margin on top of any base commission. Buy-rate models are most common in revenue-based financing and term loan products and less common in commodity MCA pricing.

The 12% to 15% tier

The upper compensation tier — sometimes 12% to 15% on the advance amount — appears on three specific deal types. The first is small-balance, hard-credit advances under $25,000, where the lender pays a premium to incentivize brokers to spend the closing energy on a deal that would otherwise be unattractive to place. The second is renewal traffic where the broker has a relationship lock; the lender pays up to retain the channel. The third is high-risk verticals — late-stage stacking files, cannabis-adjacent operators, certain trucking files — where the lender needs broker effort to source the file at all.

When you see a factor rate that feels notably high for a clean file, the broker commission tier is the first place to look. A merchant with $200,000 in monthly deposits, two years in business, and a 680 FICO should not be paying 1.45 on a $50,000 advance. The clean-file factor on that profile is closer to 1.25 to 1.30 at most direct lenders. The 1.45 number doesn't reflect risk; it reflects the commission layer.

How the commission gets into your factor rate

Every funder runs the same kind of internal calculation: starting from a target internal rate of return on capital, working backward through expected default rates, collection costs, and fixed origination expenses, to arrive at a factor rate that produces the required return. When a deal arrives through a broker, the underwriter adds the broker commission as another origination cost line item and re-runs the math. A 6% commission on a $50,000, 9-month, 1.28 deal might push the gross factor to 1.34 or 1.35 to preserve the same target return. A 10% commission pushes it further still.

This is why two merchants with identical financial profiles can be quoted very different factor rates on the same lender. They are not being underwritten differently. The difference is the broker layer. A direct submission lands on the underwriter's desk without the commission load; a broker submission lands with it pre-attached and the rate moves up to absorb it.

True broker fee vs lender margin

One useful mental model: separate the cost of a deal into three buckets. The lender's true cost of capital and operating expense is one bucket — the floor below which the funder cannot price profitably. The lender's marginis the second bucket — the profit the lender intends to earn on the deal. The broker commission is the third bucket — the channel cost.

On a clean $50,000 nine-month advance, those buckets might look approximately like: $3,500 cost of capital and operations; $8,000 lender margin; $0 broker commission on a direct deal. Total payback at 1.23 would be roughly $61,500. Run the same deal through a broker collecting 8%, and a fourth bucket of $4,000 commission gets added. To preserve the same lender margin, the factor moves to about 1.30 and total payback to roughly $65,000. The merchant pays the entire $4,000 commission, plus a small additional amount to absorb the time-value impact of paying the commission out at funding rather than over the life of the deal.

The disclosure problem

Federal law does not require broker commission disclosure on commercial financing. Most state laws don't either. California's SB 1235, fully operative in December 2022, requires a standardized disclosure of total cost and APR-equivalent but does not itemize broker compensation. New York's commercial financing disclosure law, effective August 2023, takes a similar approach. Georgia, Utah, Virginia, and Connecticut have followed with their own variants. None of these statutes requires the broker to tell you, in writing, the dollar amount they are earning on the deal.

The practical effect is that merchants almost never see the commission number. The contract shows the purchase price (what's wired to the merchant) and the purchased amount (the total payback). It does not break down what portion of the spread is going to the broker, what portion to the lender, and what portion to overhead. A merchant can read a fully executed MCA contract from cover to cover and have no idea whether the broker on the deal earned $2,000 or $7,500.

How to ask the right questions

The single most useful question to ask any broker before signing is: "What commission percentage are you earning on this deal, and from which lender?" A straightforward broker will answer. An evasive answer is itself useful data. The follow-up: "If I went directly to the same lender, what factor rate would I get?" Honest brokers will tell you the answer is usually one to three points better and will explain the value they're adding to justify the gap — speed, comparison shopping, file packaging, relationship leverage.

A second question worth asking is: "Have you submitted this file to more than one lender, and what were the other offers?" A broker shopping a file to five lenders and choosing the highest-commission option without telling you is a common pattern. Asking to see all the offers — not just the one the broker wants to close — flips the dynamic. You become the decision-maker rather than the broker's preferred revenue line.

Why direct lenders often quote cleaner

Goliath funds directly. There is no ISO commission line item on a direct deal, because there is no ISO. The lender's pricing target is the same on every file, and the entire spread between cost of capital and factor rate stays with the lender — which means we can either keep that margin or pass it back to the merchant in the form of a sharper rate. On competitive files, we choose the sharper rate, because the merchant is also choosing between us and the broker quote sitting on their desk.

The trade-off is that going direct means doing the comparison shopping yourself. A broker can submit your file to a dozen lender platforms in a single afternoon. A merchant going direct has to make those submissions one at a time. For some operators, the time savings is worth the commission load. For most operators on a clean file, the math favors going direct, asking the lender to show their work, and using the saved commission to either fund more capital or pay off the advance faster.

The bottom line on broker compensation

Brokers earn a living, and a good broker provides real value on the right file. The problem is not that brokers exist; it's that the compensation is invisible and the incentive structure pushes toward closing rather than toward the best deal for the merchant. If you're going to work with a broker, work with one who will tell you their commission in writing before you sign. If you're not going to work with a broker, get at least one direct-lender quote on every advance, so you have a baseline against which to compare the brokered offer. The merchants who consistently fund at the lowest effective cost are the ones who shop two or three quotes from mixed channels — direct and brokered — and ask hard questions about pricing on each.