A merchant cash advance quotes a factor rate, not an interest rate — which is why the true cost is so easy to underestimate. Enter the advance, factor rate and holdback to see total payback, how long the daily withholdings will run, the effective APR, and what the same money would cost as a term loan.
Optional flags — these change the effective cost materially.
A factor rate is not an interest rate. It is applied once to the advance and never amortises, so the effective APR on a short holdback schedule is routinely 40%–150% — far above what the same money would cost on a term loan.
Situation: A restaurant processes $2,500 a day in card sales and needs $50,000 for a kitchen build-out. The funder offers a 1.35 factor rate with a 10% holdback on daily card volume and a $1,500 underwriting fee.
Calculation: Total payback = $50,000 × 1.35 = $67,500. Holdback = $2,500 × 10% = $250 per business day. Payoff = $67,500 ÷ $250 = 270 collection days, roughly 12.5 months on a 5-day week.
Situation: A retailer takes the same $50,000 but the funder prices it at 1.45 with a 20% holdback, and collections run seven days a week on $2,500 of daily sales.
Calculation: Total payback = $50,000 × 1.45 = $72,500. Holdback = $2,500 × 20% = $500 per day. Payoff = $72,500 ÷ $500 = 145 collection days. Faster payoff does not mean cheaper money — the cost rose to $22,500 because the factor rate is set at the outset.
Situation: Instead of an MCA you qualify for a $50,000 bank term loan at 12% APR over three years, with a $1,000 origination fee.
Calculation: Monthly payment on $50,000 at 1% monthly for 36 months = $1,660.72. Total paid = $59,785.76, so total interest = $9,785.76 plus the $1,000 fee = $10,785.76. Roughly 61% less than the 1.45 MCA.
Total payback = advance amount × factor rate (a one-time multiplier, not an interest rate)
Holdback per period = average daily or weekly sales × holdback percentage
Collection periods = total payback ÷ holdback per period
Days outstanding = collection periods ÷ collection days per week × 7
Net advance = advance amount − any up-front origination or underwriting fee
A merchant cash advance is not a loan in the legal sense in most states. It is the purchase of a portion of future receivables at a discount, which is why funders quote a factor rate instead of an interest rate. The distinction is not cosmetic — it changes the arithmetic entirely.
| Feature | Merchant cash advance | Term loan |
|---|---|---|
| Pricing unit | Factor rate (1.1 – 1.5) | APR (6% – 30%) |
| How it accrues | Applied once to the principal | Accrues on declining balance |
| Total cost on $50,000 at 1.35 | $17,500 flat | ~$9,786 at 12% over 3 years |
| Repayment | % of daily card sales | Fixed monthly payment |
| Effect of early payoff | Little or none — cost is fixed | Interest saved |
| Underwriting | Bank statements, days | Credit, tax returns, weeks |
The critical consequence: because the factor rate is fixed at the outset, paying an MCA off early does not reduce the cost. You owe the full payback amount regardless of how quickly you get there. On a bank loan, every early dollar saves interest.
Two advances with the same dollar amount can differ by tens of thousands of dollars depending purely on the factor rate and the holdback. The holdback changes how fast you repay; the factor changes how much you repay. Only the factor affects cost.
| Factor rate | Payback on $50,000 | Cost | Typical use case |
|---|---|---|---|
| 1.10 | $55,000 | $5,000 | Strong card volume, A-paper renewal |
| 1.20 | $60,000 | $10,000 | Established merchant, 2+ years |
| 1.35 | $67,500 | $17,500 | Standard pricing, most common tier |
| 1.45 | $72,500 | $22,500 | Thinner file or higher risk |
| 1.50 | $75,000 | $25,000 | Maximum tier, short history |
Industry data puts the average MCA factor rate between 1.2 and 1.5, with an effective APR commonly landing in the 40% to 150% range. The single strongest lever you have is negotiating the factor rate, not the holdback — lowering the holdback only stretches repayment and keeps you paying a fixed premium for longer.
There is a legitimate case for a merchant cash advance, and it is narrower than the marketing suggests. The honest framing is that you are buying speed and underwriting flexibility, and paying a substantial premium for both.
An inventory purchase with a known margin that clears inside the holdback period; a bridge when a bank loan is already approved and closing; an equipment repair that restores revenue immediately. The advance must produce revenue faster than it is repaid.
Funding operating losses, paying existing debt, covering a seasonal trough with no recovery plan, or taking a second MCA to pay the first. Stacking advances accelerates the cash drain and is the most common path to default.
A common pattern is taking a second MCA to cover the holdback of the first. Once two holdbacks run at once, 30–40% of daily card volume is gone before payroll, and the collapse comes fast.
Ask for the total payback amount, the factor rate, the holdback percentage, the collection frequency and whether the agreement carries a confession of judgment. Some states — including California, New York and Utah — now require APR-style disclosure.
To compare fairly you must put both on the same footing — that means annualising the MCA cost. The formula below is the standard rough conversion funders and brokers use:
Worked on the $50,000 / 1.35 / 270-business-day example with no up-front fee: total cost $17,500 on a $50,000 advance over 378 calendar days (270 business days ÷ 5 × 7). That annualises to 36.7%. Note the direction of the effect: shorter payoff periods produce higher APRs, because the same fixed dollar cost is spread over fewer days. At a 20% holdback on the same factor rate the advance retires in about 5 months instead of 12, and the annualised figure rises toward 90% even though the dollar cost never changed — which is the clearest illustration that with a factor rate you are paying for the money, not for the time.
⚠️ Important Disclaimer: This calculator estimates MCA cost from the factor rate, holdback percentage and collection frequency you enter. Real MCA agreements vary widely — reconciliation clauses, minimum payment floors, stacking restrictions, prepayment terms and confession-of-judgment provisions can all change the true cost, and none of them are captured here. The APR figure is a rough annualisation for comparison purposes only and is not the disclosure required by any state statute. Merchant cash advances are an expensive form of capital; a misjudged advance can strip daily cash flow faster than a business can absorb. This is general educational information, not financial, tax or legal advice — review any agreement with a commercial attorney or accountant before signing.