Convert factor rates to effective APR and see the true cost of a merchant cash advance. Compare MCA pricing against a traditional term loan side by side.
This factor rate equates to a very high annualised cost of borrowing
Based on $450.00/day holdback. Actual timing depends on daily sales volume fluctuations.
What a traditional term loan would cost at the same effective APR of 60.0% over 6 months.
| MCA | Term loan | |
|---|---|---|
| Amount borrowed | $30,000 | $30,000 |
| Rate | 1.3x factor rate | 60.0% APR |
| Monthly payment | ~$6,500(via daily holdback) | $5,910.52 |
| Total repayment | $39,000 | $35,463 |
| Total cost of borrowing | $9,000 | $5,463 |
| Early repayment discount | Usually none | Yes, reduces interest |
The MCA costs $3,537 more than an equivalent term loan. Even at the same high APR, a term loan is cheaper because interest reduces as principal is repaid and early repayment saves money.
Adjust the factor rate between 1.1 and 1.5 to see how even a small increase dramatically changes the effective APR and total cost. A factor rate of 1.1 over 6 months is already 20% APR.
Increase the holdback percentage to see how it shortens repayment time but squeezes daily cash flow. Find the balance between fast repayment and operational comfort.
The comparison table shows what you would pay monthly on a traditional term loan at the same effective APR. The total cost difference reveals why MCAs should be a last resort.
Change your daily revenue estimate to see how it affects days to repay. Lower revenue means a longer repayment period, but the total amount owed stays the same because the factor rate is fixed.
A factor rate is a simple multiplier on the advance amount. Unlike interest rates, the cost is fixed regardless of how quickly you repay. A 1.3 factor rate means you always pay back 130% of the advance.
MCAs have short repayment periods (3-12 months). When you annualise the cost, even a modest factor rate translates to a very high APR. A 1.3 factor over 6 months equals 60% APR.
The MCA provider automatically withholds a fixed percentage of your daily card sales. Revenue fluctuations change how long repayment takes, but the total amount owed stays the same.
MCAs are structured as purchases of future receivables, not loans. This means they may not be subject to the same consumer protections as traditional business finance. Understand the terms before signing.
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A factor rate is a multiplier applied to your advance amount to determine total repayment, not an interest rate. For example, a $30,000 advance at a factor rate of 1.3 means you repay $39,000 total. When converted to an equivalent APR, factor rates often equate to 40-100%+ annualised, which is why this calculator exists - to reveal the true cost.
An MCA makes sense when you need fast cash (typically funded in 1-3 days), have strong daily card revenue but weaker credit history, and cannot qualify for traditional finance. A term loan is almost always cheaper. MCAs should be considered a last resort after exploring business loans, lines of credit, and invoice finance.
Invoice finance involves selling outstanding invoices to a funder who advances 80-95% of the invoice value upfront, charging a fee per invoice. An MCA is an advance against future sales using a factor rate. Invoice finance is typically cheaper because it is secured against specific receivables with known payment dates, reducing lender risk.
The holdback is the percentage of your daily card sales automatically withheld by the MCA provider until the advance is fully repaid. A higher holdback percentage means faster repayment but tighter day-to-day cash flow. Holdback rates typically range from 5% to 30% of daily revenue.
Most MCAs do not offer early repayment discounts. You owe the full factor rate amount regardless of how quickly you repay. This is a key difference from traditional loans where early repayment reduces total interest. Some newer MCA providers offer partial rebates for early completion, but this is not standard.
Technically no. A merchant cash advance is structured as a purchase of future receivables, not a loan. This legal distinction means MCAs are subject to different regulation and may not carry the same consumer protections as traditional business loans. It also means factor rates are used instead of interest rates, which can obscure the true cost of borrowing.
Results are estimates only and should not be relied upon for financial decisions. Actual merchant cash advance repayments will depend on the lender, your credit profile, and the specific terms offered. Interest rates used are for illustration purposes only and may not reflect current market rates.
Subject to lender approval, terms and conditions apply.
This calculator is general information only and is not financial advice.