Definition.
Factor rate: a multiplier, typically 1.1 to 1.5, applied to a merchant cash advance to get the total payback amount. It is not an interest rate: it ignores the term, so the same factor rate costs twice as much per year on a 6-month advance as on a 12-month one.
Try it with your own numbers
Rough approximation, not a statutory or cash-flow APR calculation. This tool doubles the simple annualized charge as a declining-balance shortcut; it does not model payment dates, fees or changing sales. A cash-flow APR requires the amounts and timing of proceeds and payments. See CFPB APR calculation guidance.
The four steps, by hand
- Payback = advance × factor rate. $100,000 × 1.35 = $135,000.
- Cost = payback − advance. $135,000 − $100,000 = $35,000.
- Simple rate = cost ÷ advance. $35,000 ÷ $100,000 = 35%, for the term, not the year.
- Annualize: × 12 ÷ months. 35% × 12 ÷ 6 = 70% simple. This calculator then doubles the simple rate: 70% × 2 = 140%. That is a rough annualized cost approximation, not an exact APR; actual payment timing and fees matter.
Common factor rates, converted
| Factor rate | 4-month term | 6-month term | 12-month term |
|---|---|---|---|
| 1.15 | ~90% | ~60% | ~30% |
| 1.20 | ~120% | ~80% | ~40% |
| 1.25 | ~150% | ~100% | ~50% |
| 1.30 | ~180% | ~120% | ~60% |
| 1.35 | ~210% | ~140% | ~70% |
| 1.40 | ~240% | ~160% | ~80% |
| 1.50 | ~300% | ~200% | ~100% |
Prototype comparison figures (online term loans 9–36% APR; SBA 7(a) loans 10–13%) are illustrative, not verified current offers or completed research. Do not use them to select financing.
Related terms
Holdback / specified percentage
The share of daily card receipts or revenue the funder takes. In practice most advances debit a fixed daily ACH instead, which is why reconciliation clauses exist.
Reconciliation
A contract right to have the daily payment adjusted to match actual revenue when sales drop. Frequently ignored unless invoked in writing.
Confession of judgment (COJ)
A signed pre-admission of liability letting the funder obtain a judgment without a lawsuit or notice. Unenforceable in some states; still routine in MCA contracts governed by New York law against New York businesses.
UCC-1 lien
A public filing giving the funder a security interest in your business assets. Nearly universal; make sure it is terminated after payoff or settlement.
Frequently asked questions
Is a 1.2 factor rate good?
A 1.2 factor means total payback is 120% of the advance before any additional charges. For a four-month term, this calculator’s rough annualized cost approximation is 120%, not an exact APR. Whether the financing is suitable depends on its full terms, your cash flow and available alternatives.
Why don’t funders quote APR?
Federal Regulation Z generally exempts business-purpose credit, so an MCA label alone does not determine whether consumer disclosure rules apply. Separate state commercial-financing disclosure requirements may apply. Check the agreement, business purpose and governing state rules. See the CFPB business-credit exemption.
Does paying off early save money?
If the agreement requires the same total payback regardless of timing, early payment does not reduce that contractual amount. Check for a written prepayment discount and any fees; do not assume early payoff produces savings.
Already in an advance you cannot sustain? See who can help: best debt settlement companies for business debt or rankings near you.