# APR-equivalent

> The annualized percentage rate implied by a factor-rate MCA. A 1.30 factor over 9 months is roughly 73% APR-equivalent, computed from the daily payment schedule.

APR-equivalent is the conversion of a factor-rate MCA into the annualized interest rate it implies. It is what regulators in five US states (CA, NY, UT, VA, GA) now require funders to disclose on every offer letter under $500K.

**Why it matters.** Factor rates obscure the true cost of capital. A 1.30 factor sounds modest; the APR-equivalent (about 73% on a 9-month term, computed from the daily payment schedule) reveals the real comparison against bank loans, lines of credit, and credit cards.

**How it is computed (from the payment schedule).**
You receive the advance today and repay factor × advance in N level debits. The APR-equivalent is the per-period rate r at which the present value of those debits equals the advance, multiplied by the number of debit periods per year. Daily MCA debits run on business days, so N ≈ term-in-days × 252 ÷ 365 and the annualizing multiplier is 252 (weekly debits: N ≈ term-in-days ÷ 7, multiplier 52). This is a nominal rate, not compounded.

**Example.**
- Factor 1.30, 9-month (about 274-day) term, about 189 business-day debits: **≈ 73% APR-equivalent**.
- Factor 1.25, 12-month (365-day) term, about 252 business-day debits: **≈ 46% APR-equivalent**.
- Factor 1.40, 6-month (180-day) term, about 124 business-day debits: **≈ 144% APR-equivalent**.

**Why this method.** A shortcut formula that divides the fee by an assumed average balance understates the cost (it can land below even the simple rate of fee ÷ advance, annualized). Computing the rate from the actual payment schedule is the same present-value math used for the rate on an amortizing loan, so it compares like for like against loans, lines of credit, and cards.

**State disclosure laws.** As of 2026, California (SB 1235), New York (S5470A), Utah (SB 183), Virginia (HB 1027), and Georgia (SB 90) require MCA offer letters to state the APR-equivalent in addition to the factor rate. Texas has a similar bill in process. Funders that operate in those states are compliant; out-of-state shops may not be.

## Related terms

- [Factor rate](https://fundnode.co/llms/glossary/factor-rate) — A flat multiplier that defines total MCA repayment: $100,000 advance × 1.30 factor = $130,000 repaid. It is not an interest rate; it does not compound.
- [Merchant cash advance (MCA)](https://fundnode.co/llms/glossary/merchant-cash-advance) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.

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Source: https://fundnode.co/glossary/apr-equivalent (HTML version)
Document: APR-equivalent — Fundnode MCA Glossary
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