To convert a factor rate to an APR, work out the payment stream (funded amount × factor rate, divided into equal daily or weekly payments over the term), then find the annual rate at which those payments are worth exactly the funded amount. The same factor rate gives a much higher APR over a short term than a long one: $100,000 at 1.30 is roughly 109% over six months of daily payments, and roughly 66% over ten.
Why the same factor rate gives different APRs
A factor rate is a one-time cost: 1.30 means you deliver 1.3 times the funded amount, whether it takes four months or ten. An APR spreads cost over a year and accounts for the fact that you're paying the money back as you go. Deliver the same total faster and the cost per year rises, because you had the use of the money for less time.
| Hypothetical | Total cost | Term | Estimated APR |
|---|---|---|---|
| $100,000 at 1.30, daily | $30,000 | 6 months | About 109% |
| $100,000 at 1.30, daily | $30,000 | 8 months | About 82% |
| $100,000 at 1.30, daily | $30,000 | 10 months | About 66% |
The dollar cost doesn't change across those rows. That's why we encourage comparing offers on total payback and payment size first, and using APR to compare a merchant cash advance with products that are quoted that way, like a line of credit or a term loan.
Factor rate vs. APR: which should you look at?
- Factor rate and total payback tell you exactly what the advance costs in dollars. That's the number that leaves your business.
- APR tells you how expensive that money is per year, which is how bank products are priced. It's the fair way to compare across product types.
- Payment size tells you whether the advance fits your cash flow day to day. Check it against your slowest month, not your best.
A short-term advance usually has a higher APR than bank credit. It earns its place when speed matters, when bank credit isn't available, or when the money funds something that returns more than it costs. Our factor rate guide goes deeper, and state disclosures explains where funders must show an estimated APR.
Frequently asked questions
How do you convert a factor rate to an APR?
Multiply the funded amount by the factor rate to get the total payback, divide it into equal payments over the term, then find the annual rate at which those payments are worth exactly the funded amount. The calculator does this for daily or weekly payments.
What APR is a 1.3 factor rate?
It depends on the term. On $100,000 with daily payments, a 1.30 factor rate is roughly 109% APR over six months and roughly 66% over ten months. The dollar cost, $30,000, is the same in both cases.
Is the calculator's APR the same as the one on a state disclosure?
Not necessarily. State disclosure rules set their own methods and assumptions. Use this calculator to compare options; rely on the disclosure that comes with an offer for that offer's figure.
Why is an MCA's APR higher than a bank loan's?
The term is short and the funding is based on future sales rather than collateral, so the cost per year is higher. You're paying for speed, light paperwork and payments that track your revenue.