Buy Rate vs. Sell Rate
The buy rate is the wholesale price a funder charges an ISO or broker for a financing product; the sell rate is the marked-up price the ISO charges the end borrower. The spread between the two is the ISO's commission.
Definition
In the alternative lending and merchant cash advance (MCA) ecosystem, pricing flows through a two-tier structure. The buy rate is the wholesale cost that a funding company (the funder) offers to an independent sales organization (ISO) or broker. It represents the funder's minimum return requirement on a given deal, accounting for underwriting risk, cost of capital, and default expectations. Buy rates are typically expressed as a factor rate (e.g., 1.20) or, less commonly, as a percentage rate on the funded amount.
The sell rate is the price the ISO or broker charges the end borrower. It is always equal to or higher than the buy rate. The difference between the sell rate and the buy rate is the ISO's gross commission on the transaction. For example, if a funder offers a buy rate of 1.20 and the ISO sells the deal at 1.35, the ISO earns the equivalent of 15 points on the funded amount. On a $100,000 advance, that spread would yield $15,000 in ISO commission before any internal costs.
This two-tier model is structurally similar to wholesale-retail pricing in other industries, but with a critical difference: the borrower typically has no visibility into the buy rate. Unlike mortgage lending, where broker compensation disclosures are mandated under federal regulations, the MCA and alternative lending space operates with minimal disclosure requirements around buy/sell rate spreads. The borrower sees only the sell rate and the resulting repayment terms.
Buy and sell rates apply most directly to merchant cash advances, but the same economic structure exists in revenue-based financing, equipment financing broker channels, and certain business line of credit products distributed through ISO networks. Any time a third-party originator sits between the funder and the borrower, a buy/sell rate dynamic is likely in play.
Why It Matters
Understanding the buy rate vs. sell rate distinction is essential for any business owner evaluating alternative financing. The sell rate determines the borrower's total cost of capital, but the buy rate determines how much of that cost is the funder's pricing versus the broker's markup. A high sell rate does not necessarily mean the funder is expensive; it may mean the ISO is taking an outsized spread. Without visibility into the buy rate, borrowers cannot distinguish between a high-cost product and a high-commission intermediary.
For business owners, the practical implication is negotiation leverage. Borrowers who understand the buy/sell rate structure can push back on pricing, request rate breakdowns, or shop multiple ISOs to compress the spread. In competitive markets, ISOs commonly mark up buy rates by 5 to 15 points, but markups of 20 points or more are not uncommon on smaller deals or with less sophisticated borrowers. Comparing the annual percentage rate (APR) across multiple offers remains the most reliable way to evaluate true cost, regardless of how the rate is structured.
From an industry perspective, the buy/sell rate model is what makes the ISO channel economically viable. Funders benefit from outsourced origination without maintaining a direct sales force. ISOs benefit from flexible commission structures that reward deal volume and quality. The tension arises when excessive spreads push borrowers into repayment terms that strain cash flow, particularly when combined with aggressive holdback percentages or daily ACH withdrawal structures.
Common Mistakes
Assuming the sell rate reflects the funder's pricing. Borrowers frequently treat the rate they receive as the funder's rate. In reality, the ISO's markup may represent 30% to 50% of the total cost. Without asking whether a broker spread is included, borrowers cannot assess whether the pricing is competitive at the wholesale level.
Comparing factor rates without converting to APR. A factor rate of 1.30 on a 6-month advance and 1.30 on a 12-month advance represent very different annualized costs. Borrowers who compare sell rates at face value without normalizing for term length will misjudge the true cost differential. Always convert to APR or total dollar cost for apples-to-apples comparison.
Not shopping multiple ISOs for the same funder. Different ISOs may have different buy rates from the same funder based on volume tiers, relationship history, and submission quality. Two ISOs quoting the same product from the same funder can present materially different sell rates. Requesting quotes from at least three ISOs on the same deal is a basic due diligence step that many borrowers skip.
Ignoring the relationship between spread size and deal quality. ISOs sometimes compress their spread on strong deals to close quickly and expand it on weaker credits to compensate for higher expected default rates on their portfolio. A borrower with strong fundamentals who accepts the first offer without negotiation is likely leaving money on the table.
Conflating buy/sell rate dynamics with MCA stacking risks. The buy/sell rate spread is a cost-of-capital issue. Stacking is a leverage and repayment sustainability issue. Borrowers who focus exclusively on rate negotiation while taking on multiple concurrent advances may optimize the price per dollar while creating an unsustainable aggregate repayment burden.
Ready to explore your financing options?
Get Financing OptionsFrequently Asked Questions
Is a broker required to disclose the buy rate to the borrower?
In most states, no. The MCA and alternative lending industry operates with fewer disclosure mandates than traditional lending. However, several states have enacted or proposed commercial financing disclosure laws that require ISOs to present standardized pricing metrics, including APR-equivalent calculations. Even where disclosure is not legally required, a reputable ISO should be willing to discuss their compensation structure transparently. If an ISO refuses to address the question, it is a meaningful signal about their business practices.
How much does a typical ISO markup add to the cost of an MCA?
ISO markups vary widely depending on deal size, credit quality, funder competition, and the ISO's own cost structure. On a standard merchant cash advance, markups of 5 to 15 factor rate points are common. On a $100,000 advance, a 10-point markup (e.g., buy rate 1.25, sell rate 1.35) adds $10,000 to the borrower's total repayment cost. Larger deals and stronger credits tend to have compressed spreads because ISOs compete more aggressively and funders offer better wholesale pricing on lower-risk transactions.
Do buy and sell rates apply only to merchant cash advances?
No. The buy/sell rate structure exists across most broker-distributed alternative financing products, including revenue-based financing, equipment financing originated through ISO channels, and certain short-term working capital loan programs. Any product where a third-party originator sits between the funder and borrower will have some form of wholesale vs. retail pricing, though the terminology and structure may differ. In equipment financing, for instance, the equivalent is often a dealer markup on the money factor or lease rate.
Can a borrower go directly to the funder to avoid the sell rate markup?
Some funders accept direct applications, but many operate exclusively through ISO channels and do not have borrower-facing sales teams. Even among funders that accept direct deals, the pricing offered to a walk-in borrower is not necessarily equal to the buy rate; the funder may apply its own retail margin. The most reliable strategy is to obtain quotes from multiple ISOs and, where possible, from direct funders, then compare the total cost of capital across all options.
How does the buy/sell rate spread affect MCA renewal pricing?
On MCA renewals, the buy rate from the funder often improves because the borrower has demonstrated repayment performance. However, the ISO may or may not pass that improvement through to the sell rate. Some ISOs maintain or even widen their spread on renewals, knowing the borrower is an established repeat customer less likely to shop competitively. Borrowers should treat every renewal as a new transaction and compare the proposed sell rate against fresh quotes from other sources to ensure the rate improvement at the wholesale level is reflected in their actual cost.
Last reviewed: