Factor Rate to APR Calculator
See the true cost of factor-rate financing. Convert factor rates into APR and compare them to traditional loans.
How to Use This Calculator
- Enter your funding amount - the cash you actually receive, not the total repayment.
- Enter your factor rate - the multiplier from your MCA offer (e.g., 1.35). If your offer shows total repayment instead, divide total repayment by funding amount to get the factor rate.
- Enter the repayment term - how many months until the advance is fully repaid.
- Select your payment frequency - most MCAs use daily ACH withdrawals on business days. Some providers use weekly or monthly schedules.
The calculator converts your factor rate into an effective APR, showing the true annual cost alongside a comparison to traditional financing rates.
Why Factor Rates Are Misleading
Factor rates make financing look cheaper than it is. A 1.35 factor rate sounds like 35% - but that is the total cost, not the annual rate. The actual APR depends on how quickly you repay.
A 1.35 factor rate repaid over 12 months with daily payments translates to roughly 60-65% APR. The same factor rate over 6 months exceeds 110% APR. Shorter terms mean higher effective rates because you are paying the same fixed cost over fewer months.
Unlike interest on a traditional loan, the cost of a factor-rate advance does not decrease as you pay down the balance. You owe the full repayment amount regardless of how early you repay. This is why converting to APR is essential for comparing MCA offers to conventional financing.
Factor Rate vs. Interest Rate
A factor rate is a flat multiplier applied to the entire funding amount. An interest rate accrues only on the outstanding balance, decreasing as you make payments.
Factor rate example: $100,000 at 1.35 = $135,000 total repayment, regardless of term or payment speed.
Interest rate example: $100,000 at 12% APR over 12 months = ~$106,619 total repayment. The interest portion shrinks each month as the principal decreases.
This structural difference is why a factor rate that looks similar to a loan rate actually costs significantly more. The calculator above quantifies exactly how much more by converting the factor rate into the APR equivalent.
See how MCA costs stack up against SBA loans, lines of credit, and other financing options.
Compare this to a traditional loanFrequently Asked Questions
What is a typical factor rate for a merchant cash advance?
Most MCA factor rates fall between 1.10 and 1.50, depending on the provider, your business revenue, time in business, and industry risk. Lower-risk businesses with strong daily credit card volume may qualify for rates near 1.10-1.20. Higher-risk or newer businesses typically see rates of 1.30-1.50 or higher.
Why is my APR so high even though my factor rate seems low?
Factor rates are deceptive because they express the total cost as a simple multiplier, not an annual rate. A 1.30 factor rate over 6 months produces an APR above 90% because you are paying 30% of the advance amount in just half a year. The shorter the repayment term, the higher the effective APR for any given factor rate.
Does paying off an MCA early save money?
Usually not. Most MCA contracts require you to repay the full factor-rate amount regardless of how quickly you repay. Some providers offer small prepayment discounts, but this varies. Unlike a traditional loan where early payoff reduces total interest, an MCA with a factor rate locks in the total cost at signing. Always check your contract for early payoff terms.
How does the calculator handle daily payments?
Daily payment calculations assume 20 business days per month (Monday through Friday, accounting for holidays), or 240 business days per year. This matches how most MCA providers structure their daily ACH withdrawals. If your provider debits every calendar day, the actual APR would be slightly different.
Is an MCA technically a loan?
No. A merchant cash advance is structured as a purchase of future receivables, not a loan. This means MCAs are not subject to usury laws or Truth in Lending Act (TILA) disclosure requirements in most states. Providers are not required to disclose an APR. This calculator provides an equivalent APR so you can make informed comparisons.
When does an MCA make sense despite the high APR?
An MCA may be appropriate when you need capital quickly (1-3 days), cannot qualify for traditional financing, and have a specific revenue opportunity that justifies the cost. For example, if a $50,000 advance at a 1.35 factor rate funds a contract that generates $100,000 in profit, the $17,500 cost may be worthwhile. The key is calculating whether the return on the funded opportunity exceeds the cost of capital.
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