A merchant cash advance is priced with a factor rate, not an interest rate — multiplying, not compounding — which makes it look deceptively cheap next to a percentage figure.
How it works
Total repayment is the advance multiplied by the factor rate. Annualizing the resulting dollar cost against the advance and the actual repayment period reveals the effective rate a bare factor rate hides, since MCAs are typically repaid over weeks or a few months, not a year.
What this does not include
Real MCA repayment is usually a daily or weekly percentage of card sales, so the actual repayment period varies with revenue — this calculator takes an estimated repayment period as an input rather than modeling variable daily collections.
How to use this calculator
- Enter the advance amount and factor rate.
- Enter the estimated repayment period in days.
Frequently asked questions
Why does a 1.3 factor rate sound cheap but cost so much annualized?
Because the 30% cost is compressed into a short repayment period — spreading the same dollar cost over a full year would look far smaller, but that’s not how these products are actually repaid.
Is a factor rate the same as an interest rate?
No — a factor rate is a flat multiplier applied once to the advance amount, not a compounding percentage rate, which is exactly why it needs to be annualized to compare against loan APRs.
Why would a business use an MCA despite the high cost?
Speed and lenient approval criteria — MCAs are typically available to businesses that can’t qualify for a traditional bank loan, at a cost that reflects that accessibility.
