# APR-equivalent

> The annualized percentage rate implied by a factor-rate MCA. A 1.30 factor over 9 months is roughly 50–65% APR-equivalent depending on 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 (50–65% depending on term and payment schedule) reveals the real comparison against bank loans, lines of credit, and credit cards.

**The conversion formula (approximate).**
APR-equivalent ≈ (factor − 1) × (365 / term-in-days) × 1.6

The 1.6 multiplier accounts for the declining balance — you are paying interest on the original principal even as the balance drops.

**Example.**
- Factor 1.30, 9-month (270-day) term: (0.30) × (365/270) × 1.6 ≈ **65% APR-equivalent**.
- Factor 1.25, 12-month (365-day) term: (0.25) × (365/365) × 1.6 ≈ **40% APR-equivalent**.
- Factor 1.40, 6-month (180-day) term: (0.40) × (365/180) × 1.6 ≈ **130% APR-equivalent**.

**For exact math, use the IRR (internal rate of return) of the cash-flow stream.** The 1.6 multiplier is an approximation that works within ±5% for most daily-ACH MCAs.

**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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