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TL;DR
A factor rate is total payback divided by principal. A 1.30 factor on $100K means you repay $130K total — $30K cost. To approximate APR, multiply the cost (0.30) by 365 / term in days × 100. A 1.30 factor over 180 days ≈ 60% APR.
The conversion shortcut
Approximate APR ≈ ((factor − 1) × (365 / term in days)) × 100. This is an approximation — the true APR is higher because daily remittances reduce balance over time, but it gets you in the right ballpark for comparison.
Worked examples
- •1.20 factor over 180 days ≈ 40.5% APR equivalent
- •1.30 factor over 180 days ≈ 60.8% APR equivalent
- •1.49 factor over 270 days ≈ 66.2% APR equivalent
- •1.15 factor over 90 days ≈ 60.8% APR equivalent
Why APR-equivalent matters
Two offers with the same factor but different terms have very different real costs. A 1.20 over 12 months is dramatically cheaper than a 1.20 over 4 months. Always convert before signing.
Pros of factor-rate products
- •Predictable total payback (no surprise interest)
- •Faster underwriting
- •Lower credit thresholds
Cons of factor-rate products
- •Total cost is fixed — early payoff rarely saves money
- •APR-equivalent is harder to compare at a glance
- •Daily/weekly remittance can pressure cash flow
Run the numbers
MCA / Factor Rate Calculator
Convert a factor rate offer to total cost, daily remit, and approximate APR. Useful for comparing MCA offers against term loan APRs.
Methodology
Total payback = principal × factor. APR-equivalent ≈ (factor − 1) × (365 / term days). This is an approximation — true APR is slightly higher because daily remittances reduce balance over time. APR is defined per the federal Truth in Lending Act (12 CFR § 1026, Regulation Z). MCAs are typically structured as a purchase of receivables and not subject to TILA APR disclosure, but several states (CA SB 1235, NY S5470) require commercial financing disclosures with an APR-equivalent.
Compare Two Offers (APR-equivalent)
Paste any two offers — MCA, term loan, line of credit — and normalize them to the same yardstick.
Lowest APR-equivalent wins on cost. Cents-on-the-dollar (CoD) shows total cost per dollar borrowed regardless of term length.
Related questions
Related guides
Business Loan Rates Explained (1970)
APR, factor rate, and total cost of capital — what the numbers actually mean and how to compare offers across products.
MCA vs Term Loan: Which is Right for Your Business in 1970?
Side-by-side comparison of merchant cash advances and business term loans — speed, true cost, qualification, repayment structure, and which fits your situation.
Business Loan Calculator Guide: What to Calculate Before You Sign
The four numbers every borrower should run before signing — DSCR, total cost of capital, monthly burden, and cents-on-the-dollar.
Sources & references
- Truth in Lending Act, Regulation Z (12 CFR § 1026)— Consumer Financial Protection Bureau
- California Commercial Financing Disclosure (SB 1235)— California Department of Financial Protection and Innovation
- New York Commercial Finance Disclosure Law— NY Department of Financial Services
- Small Business Credit Survey— Federal Reserve Banks