Is a factor rate the same as APR?

No. A factor rate is a flat multiplier — a 1.30 factor on $50,000 means you repay $65,000 regardless of speed. APR annualizes interest cost over time, so the same factor produces a different APR depending on how fast you pay it off. Faster repayment = higher APR-equivalent.

How is the daily payment calculated?

Total payback ÷ business days in the term. A $65,000 payback over a 12-month term (about 252 business days) is ~$258/day. Some funders use weekly or even monthly ACH on better-quality merchants.

Can I prepay an MCA to save money?

Sometimes. Many funders charge the full factor regardless of how fast you repay. A few offer prepayment discounts — Credibly and CFG, for example, publish discount schedules. Always ask before signing.

What APR-equivalent should I expect?

On a 1.30 factor with a 12-month daily-ACH term, the APR-equivalent typically lands between 50–60%. Shorter terms push it higher (toward 80–110%). It's expensive money — but cheaper than not having capital when you need it.

Are MCAs regulated by APR disclosure laws?

Increasingly, yes. California, New York, Virginia, Utah, and several other states now require commercial financing disclosures including APR-equivalent. Federal regulation is evolving — the CFPB has flagged MCAs in its small-business lending guidance.

How factor rates actually work — the merchant's math, plainly stated

A factor rate is not an interest rate. It's a multiplier. Here's exactly what a 1.30 factor costs you, how daily ACH works, and when an MCA is a reasonable price for capital.

The 60-second answer

A factor rate is a single multiplier applied to the amount funded. If a lender offers you a $50,000 merchant cash advance at a 1.30 factor, you repay $50,000 × 1.30 = $65,000. That $15,000 difference is the fee.

You repay it through daily ACH withdrawals from your business bank account — typically over 9 to 18 months. Math: $65,000 ÷ 252 business days = $258/day on a 12-month term.

That's it. The complications are in when it makes sense, how it compares to other capital, and what hidden costs live in the contract.

Factor rate vs. interest rate

Banks quote you an annual interest rate. A 12% APR business term loan means the cost of borrowing scales with how long you keep the money. Pay it back in 3 months, you barely pay any interest. Carry it for 5 years, you pay a lot.

A factor rate is the opposite. The fee is fixed the moment you sign. Pay it off in 6 months or 18 months — you owe the same $65,000 on that $50,000 advance. That's because, legally, an MCA isn't a loan. It's a sale of future receivables. You're not borrowing capital — you're selling tomorrow's revenue for cash today.

Why the distinction matters

The factor structure has three real-world consequences:

Prepaying usually doesn't save money. Unlike a loan, the fee is already baked in. Some funders offer prepayment discounts — most don't.
Defaulting works differently. Because it's a receivables sale, not a loan, the legal recourse is different. Some MCAs include confession-of-judgment clauses (banned in NY since 2019, allowed elsewhere) that let funders pursue collections aggressively.
The "cheap" rate isn't cheap. A 1.20 factor sounds low. Annualized over a 9-month daily-ACH term, it's around 40% APR-equivalent. Always do the conversion.

Worked example: a $50,000 advance at 1.30

Let's walk through a real-world deal end to end.

A restaurant doing $35,000/month in revenue takes a $50,000 MCA at a 1.30 factor with a 12-month term, paid daily via ACH.

Amount funded: $50,000
Factor: 1.30
Total payback: $50,000 × 1.30 = $65,000
Fee: $65,000 − $50,000 = $15,000
Term: 12 months = roughly 252 business days
Daily ACH: $65,000 ÷ 252 = ~$258/day
Monthly outflow: ~$5,420/month in daily ACH

The restaurant's net monthly revenue needs to comfortably absorb that $5,420 outflow on top of payroll, rent, food cost, and existing debt. If monthly net is $8,000, this is tight. If it's $15,000, it's workable.

The APR-equivalent — and why brokers don't show it

APR-equivalent answers: "what would this cost me as an annualized interest rate?"

For our $50,000 / 1.30 / 12-month example, the math gets a little involved because the balance amortizes daily. A reasonable approximation:

Average outstanding balance over the term: $57,500 (midpoint of $50K and $65K)
Annualized fee: $15,000 fee ÷ 1 year = $15,000
APR-equivalent: $15,000 / $57,500 = ~26% APR

But MCAs amortize daily, not on a simple-interest schedule, so the real APR-equivalent using a daily-balance method lands closer to 50–55%. Most regulators use this stricter calculation, and the California and New York commercial-financing disclosure laws now require funders to quote it.

Why brokers don't show it

Because 50% APR sounds terrible — even though, for a merchant who can't get a 12% bank loan and needs cash this week to make payroll or accept a big order, it's the right decision. Brokers know the APR number scares people, so they keep the conversation anchored on the factor rate and the daily payment. We think that's a trust problem worth fixing.

When an MCA is the right call

An MCA is expensive money. It's still the right call when:

You can't qualify for a bank loan — thin credit, <2 years in business, irregular revenue, or industry exclusion
The opportunity cost of waiting is higher than the fee — you need inventory for a confirmed large order, you're filling a payroll gap before a known receivable lands, or you're paying off a higher-cost debt
You've modeled the daily outflow against your actual cash position — not just average revenue, but worst-week revenue
You're not stacking — taking an MCA while another open MCA is repaying is how businesses fail

When an MCA is the wrong call

You qualify for an SBA loan, line of credit, or term loan at <15% APR
You're using it to "smooth out" chronic cash-flow problems — that doesn't go away with more debt
You can't model the daily ACH against worst-case revenue weeks
You already have one or more open MCAs (stacking is the #1 way merchants default)
Your business is <6 months in operation — the fee is rarely worth it at this stage

What to ask before signing

Three questions every merchant should ask the funder (or their broker) directly:

What's the APR-equivalent? If they can't or won't quote it, walk away.
Is there a prepayment discount? If yes, get it in writing.
What happens if my daily revenue drops? Some funders have reconciliation clauses (lower revenue = lower daily withdrawal); many don't.

Frequently asked questions

Is a factor rate the same as APR?: No. A factor rate is a flat multiplier — a 1.30 factor on $50,000 means you repay $65,000 regardless of speed. APR annualizes interest cost over time, so the same factor produces a different APR depending on how fast you pay it off. Faster repayment = higher APR-equivalent.
How is the daily payment calculated?: Total payback ÷ business days in the term. A $65,000 payback over a 12-month term (about 252 business days) is ~$258/day. Some funders use weekly or even monthly ACH on better-quality merchants.
Can I prepay an MCA to save money?: Sometimes. Many funders charge the full factor regardless of how fast you repay. A few offer prepayment discounts — Credibly and CFG, for example, publish discount schedules. Always ask before signing.
What APR-equivalent should I expect?: On a 1.30 factor with a 12-month daily-ACH term, the APR-equivalent typically lands between 50–60%. Shorter terms push it higher (toward 80–110%). It's expensive money — but cheaper than not having capital when you need it.
Are MCAs regulated by APR disclosure laws?: Increasingly, yes. California, New York, Virginia, Utah, and several other states now require commercial financing disclosures including APR-equivalent. Federal regulation is evolving — the CFPB has flagged MCAs in its small-business lending guidance.