Merchant Cash Advance APR Calculator
Convert a merchant cash advance factor rate into a genuine annual percentage rate, model the daily or weekly holdback against real revenue, and compare it with a term loan.
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A factor rate is not an interest rate
A merchant cash advance is quoted as a factor rate: borrow 50 thousand at a factor of 1.35 and repay 67,500. That looks like thirty five percent, and it is not, because the repayment happens over months rather than a year and because it amortises daily. The same advance repaid over six months has an annual percentage rate above ninety percent. Over four months it exceeds one hundred and forty. The factor rate contains no time dimension at all, which is precisely why the product is quoted that way.
Faster repayment costs more, not less
This is the counterintuitive part and the source of most misunderstanding. The total repayment is fixed by the factor rate regardless of how long it takes, so a business whose sales grow repays sooner and pays the same total for less time with the money. That raises the effective annual rate. In an ordinary loan, paying early saves interest; here it does not. Some agreements include a prepayment discount, and whether yours does is the single most valuable clause to check.
The holdback is a cash flow constraint
Repayment is a percentage of daily card receipts, commonly ten to twenty percent, taken before the money reaches your account. That means the burden is proportional to revenue, which is genuinely helpful in a slow week, and it also means the business operates on eighty to ninety percent of its takings for the whole term. Stacking a second advance on top of the first, which is common and usually prohibited, can push the combined holdback past the point where operating costs can be met at all.
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Frequently Asked Questions
How do I convert a factor rate to an APR?
Divide total repayment by the advance to get the total cost, then annualise it over the actual repayment period accounting for the declining balance. A 1.35 factor repaid over six months is roughly 90 percent APR; the same factor over twelve months is roughly 45 percent.
Why does repaying faster cost more?
Because the repayment amount is fixed by the factor rate, not accrued over time. Repaying in four months instead of eight means paying the same total for half the use of the money, which doubles the effective annual rate.
Is a merchant cash advance a loan?
Legally it is usually structured as a purchase of future receivables rather than a loan, which is how it avoids state usury caps and interest rate disclosure requirements in many jurisdictions. The economic effect on your business is the same as very expensive borrowing.
What is stacking and why does it matter?
Taking a second advance while the first is outstanding. It is prohibited in most agreements and it compounds the holdback: two advances at 15 percent each remove 30 percent of card revenue before any expense is paid, which is how businesses reach the point of not being able to operate.
When is this ever the right product?
When the funds generate a return above the annualised cost within the repayment window and no cheaper facility is available in the time required. It is priced for speed and for borrowers banks have declined, and it should be treated as short term emergency capital.
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How to Use
Enter the advance amount, factor rate and holdback percentage to see the true annualised cost.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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