Know the Figures

Merchant Cash Advance True APR

What a merchant cash advance really costs as an annual rate, not a factor rate.

Replaces: Broker quotes that only show a factor rate

How to use it

Enter the advance, the factor rate, any fees taken off the top, and how it is repaid: a fixed daily debit, or a share of your card sales. The calculator follows the debits day by day until the full amount is repaid, then finds the interest rate that fits the cash you actually received against those payments.

Where the number comes from

  • Total repaid is the advance times the factor rate. Cash received is the advance minus any fees deducted before it reaches you.
  • With a holdback, the daily payment is the holdback share of monthly card sales spread over the business days in a month.
  • Payments are taken each business day until the total is repaid; the term in months is those days divided by business days per month.
  • The effective APR is the daily rate at which the present value of every payment equals the cash you received, multiplied by 252 business days a year. It is a simple annual rate, the same basis as the loan calculator on this site.
  • Total cost is everything you repay minus the cash you received, so it captures the factor charge and the fees together.

What goes wrong

The part most calculators leave out.

  • A holdback advance has no fixed term: the payments follow your sales. The APR here assumes sales hold steady at the figure entered, and moves with them: faster sales mean a higher rate, slower sales a lower one.
  • Annualising with 252 business days assumes debits every weekday. Providers who debit on weekends too, or skip bank holidays, change the day count and so the rate.
  • The figure is a simple annual rate. Compounded, an advance repaid in months has a far higher effective annual rate than this, so compare like with like.
  • Some contracts add fees later: missed-debit charges, renewal fees or a fee to refinance the balance into a new advance. None of those are in this figure.
  • If the daily payment is so low that the total is not repaid within 1,000 business days, the calculation stops and treats the rest as settled then, which is not how any real advance behaves.
  • This is the economic cost of the cash flows you enter. It is not a regulated APR disclosure, and the provider’s own figure may count fees differently.

A 1.35 factor that is not 35%

A business takes a 50,000 advance at a factor of 1.35, so it owes 67,500. A 1,500 fee comes off the top, so 48,500 arrives. The provider debits 450 every business day, which clears the 67,500 in 150 business days, about 7.1 months. The cost is 19,000 against the money received. Solve for the rate that turns 48,500 into that stream of daily payments and it is about 117% a year, more than three times the 35% the factor rate seems to suggest.

Questions

What is the difference between a factor rate and an interest rate?
A factor rate is a fixed multiple of the advance, charged once, however long repayment takes. An interest rate accrues over time on what is still owed. A 1.35 factor repaid in six months costs far more per year than one repaid in eighteen, which is why the factor alone cannot be compared with a loan rate.
Why does paying a merchant cash advance off early often save nothing?
Because the factor charge is fixed when you sign. Most contracts are purchases of future receivables, not loans, so there is no interest left to stop accruing: you owe the full amount whether you pay it over three months or nine. Some providers offer an early-settlement discount, but only if the contract says so.
Why does a higher holdback or faster sales raise the APR?
The amount you repay does not change, only how quickly you repay it. The same fixed cost paid back over a shorter time is a higher annual rate.
Why use 252 days rather than 365?
Debits are taken on business days, and there are roughly 252 of them a year. Counting the rate per business day and multiplying by 252 keeps the days in the rate and the days in the payments on the same basis.
Does anything I type get sent anywhere?
No. The whole calculation runs in your browser. Nothing is sent to us or logged, and there is no account to create. Your browser keeps the figures with this tab’s history so that Back and Reload bring them back, and Reset clears them.

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