An origination fee pays the funder or lender for processing and closing the deal. It is usually a percentage of the funded amount, though some are flat. It is often deducted from the funding at closing, so you receive less than the contract amount but repay all of it.
That deduction raises your real cost more than the fee's size suggests, because the payback stays the same while the money you can use shrinks. The FTC has sued a funder whose contracts left out fees it later deducted, some of which owners learned about only after signing.
Example: On $50,000 at a 1.35 factor rate over 8 months of daily debits, a 3% origination fee ($1,500) leaves you $48,500. The estimated APR rises from about 95% to about 105%.
Ask for the net funding amount in writing and compare offers on what reaches your account.
Sources
- FTC Alleges Merchant Cash Advance Provider Overcharged Small Businesses Millions (Aug. 3, 2020) — Federal Trade Commission (checked 2026-09-30)