What Is a Factor Rate?
A merchant cash advance is priced with a factor rate, a decimal such as 1.20, 1.30, or 1.40, instead of an interest rate. The math is one line:
Advance × factor rate = total payback.
There is no compounding and no amortization. The cost is fixed the day you sign. A $50,000 advance at a 1.30 factor means you repay $65,000, a $15,000 cost, whether that takes six months or twelve.
| Advance | Factor rate | Total payback | Cost of funding |
|---|---|---|---|
| $25,000 | 1.25 | $31,250 | $6,250 |
| $30,000 | 1.20 | $36,000 | $6,000 |
| $50,000 | 1.30 | $65,000 | $15,000 |
| $100,000 | 1.35 | $135,000 | $35,000 |
Illustrative factor rates only. Your factor rate is set by the funder after underwriting and depends on revenue, history, bank activity, credit, and existing advances.
Worked Examples: What You Receive, Repay, and Pay Each Day
The factor rate is only half the story. What matters to your cash flow is how much lands in your account, how much you pay back, and how often payments come out. These examples assume 21 business days a month.
$25,000 over ~6 months
- Factor rate
- 1.25
- Total payback
- $31,250
- Daily ACH (126 days)
- $248.02
- Weekly ACH (26 weeks)
- $1,201.92
- Approx. monthly outflow
- $5,208
Effective APR at this pace: roughly 90%.
$50,000 over ~9 months
- Factor rate
- 1.30
- Total payback
- $65,000
- Daily ACH (189 days)
- $343.92
- Weekly ACH (39 weeks)
- $1,666.67
- Approx. monthly outflow
- $7,222
Effective APR at this pace: roughly 72% to 73%.
$100,000 over ~12 months
- Factor rate
- 1.35
- Total payback
- $135,000
- Daily ACH (252 days)
- $535.71
- Weekly ACH (52 weeks)
- $2,596.15
- Approx. monthly outflow
- $11,250
Effective APR at this pace: roughly 62% to 63%.
Notice that the shortest term has the highest effective APR even though its factor rate is the lowest. That is the key difference between a factor rate and an interest rate, covered next.
Fees That Change the Amount You Actually Receive
Some funders deduct an origination, underwriting, or administrative fee from the advance before sending funds. The payback is still calculated on the full approved amount, so a fee increases your real cost.
$50,000 approved at 1.30, 3% fee
- Approved amount
- $50,000
- Fee withheld
- −$1,500
- Amount received
- $48,500
- Total payback
- $65,000
- True cost of the money received
- $16,500
Effective APR rises from about 73% to about 82% on the same 9-month schedule.
Always ask: what is the net amount deposited, and what is the total payback in dollars? Those two numbers are the only fair way to compare offers.
Factor Rate vs. APR: Why 1.30 Is Not 30%
Interest accrues over time on a shrinking balance. A factor rate is a flat charge on the original amount, and you start repaying it the next business day. Because you have the full amount for only a short time, the annualized cost is much higher than the decimal suggests.
- Shorter terms raise the effective APR. The same $15,000 cost repaid over 6 months instead of 9 would push the APR well above 100%.
- Early payoff usually does not save money unless your agreement includes an early payoff discount. Ask before signing.
- APR is still useful for comparison. Some states, including California and New York, require commercial financing providers to disclose an estimated APR or similar cost figure. Use it to compare an MCA against a term loan or working capital loan.
You can convert any factor rate and term into an estimated APR with our free business loan & MCA calculator.
Payment Frequency: Daily, Weekly, or a Split of Card Sales
How you repay affects cash flow as much as the factor rate does. There are three common structures:
| Structure | How it works | Cash flow effect |
|---|---|---|
| Fixed daily ACH | The same debit every business day | Predictable, but does not drop in a slow week unless you request a reconciliation |
| Fixed weekly ACH | One larger debit each week | Easier to plan around; a bigger single hit on debit day |
| Split of card sales (holdback) | A set percentage of each card batch, for example 10% | Payments fall when sales fall; payoff takes longer in slow months |
With a split, the total payback stays the same, only the timing moves. For the $65,000 payback in Example 2 with a 10% holdback:
| Monthly card sales | Monthly remittance | Estimated payoff |
|---|---|---|
| $100,000 | $10,000 | ~6.5 months |
| $80,000 | $8,000 | ~8.1 months |
| $60,000 | $6,000 | ~10.8 months |
Illustrative. Holdback percentages, reconciliation terms, and minimum payments vary by agreement.
The Cash Flow Test: Can Your Business Carry the Payment?
Before accepting any offer, convert the payment to a monthly figure and compare it with your worst recent month, not your best.
Example 2 for a $100,000/month business
- Monthly deposits
- $100,000
- Monthly remittance
- $7,222
- Share of revenue
- 7.2%
- Net margin at 10%
- $10,000/mo
- Share of profit used
- ~72%
The advance is affordable only if the funded purpose adds profit, or if the business can live on about 28% of its normal profit for nine months.
Will this capital make or save more than it costs, in the window you will be paying for it? If you cannot answer yes with numbers, ask for a smaller amount, a longer term, or a different product, or wait.
What Affects the Factor Rate You Are Offered
- Bank activity: fewer negative days and returned items generally mean better pricing.
- Revenue consistency: stable deposits month to month lower perceived risk.
- Time in business: longer history usually earns a lower factor.
- Existing advances: each additional position tends to cost more than the last.
- Amount requested: requests far above what deposits support are often countered smaller or priced higher.
- Credit events: recent defaults or liens raise pricing even when revenue is strong.
Practical steps before you apply: hold a steady balance, avoid overdrafts for 60 days, disclose existing balances up front, and compare at least two offers. See the full MCA requirements checklist.
Five Questions to Ask Before Accepting an MCA Offer
- What is the net amount deposited after all fees?
- What is the total payback in dollars?
- What is the payment amount and frequency, and what is the estimated term?
- Is there an early payoff discount, and exactly how is it calculated?
- How does reconciliation work if my revenue drops?
Compare real MCA offers side by side
One 60-second form, soft check only. Your specialist explains every number before you sign.
For the full application process, requirements, and more examples, visit our merchant cash advance application page. Comparing products? Read MCA vs. business term loan and MCA vs. working capital loan.
Frequently Asked Questions
What is a typical merchant cash advance factor rate?
Factor rates commonly fall somewhere around 1.1 to 1.5, with lower-risk files at the bottom of that range and newer or higher-risk files at the top. Your rate is set by the funder after underwriting, so treat any range as a general pattern, not a quote.
How do I calculate MCA payback?
Multiply the advance by the factor rate. A $50,000 advance at 1.30 means a $65,000 total payback and a $15,000 cost. Divide the payback by the number of payments to get the daily or weekly amount.
What is the APR of a merchant cash advance?
It depends on the factor rate and how fast you repay. In our examples, a 1.30 factor repaid over about 9 months works out to roughly 73% APR, and a 1.25 factor over 6 months to roughly 90%. Use the business loan & MCA calculator to estimate your own.
Does paying off an MCA early save money?
Only if your agreement includes an early payoff discount. Without one, the total payback is fixed, so paying faster does not reduce the dollar cost.
Why is my factor rate higher than someone else's?
Pricing reflects risk: shorter history, uneven deposits, negative days, existing advances, recent credit events, and requesting more than your revenue supports can all raise the factor rate.
Are MCA fees included in the factor rate?
Not always. Some funders deduct origination or administrative fees from the amount funded. Ask for the net amount deposited and the total payback in dollars.