A merchant cash advance APR calculator converts a factor rate and holdback into a repayment time and an annual rate, so you can compare an advance with a loan. A $50,000 advance at a 1.35 factor rate, repaid from 15% of $40,000 monthly card sales, costs $17,500 over about 11.2 months, which works out to an APR of roughly 63%.
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How to use the merchant cash advance APR calculator
- Enter the advance amount.
- Enter the factor rate from the offer, such as 1.35.
- Enter the holdback percentage of sales.
- Enter your average monthly card sales.
- Read the total payback, months to repay and the estimated APR.
What formula does the merchant cash advance APR calculator use?
- Total payback = advance × factor rate
- Cost of the advance = total payback − advance
- Monthly remittance = average monthly card sales × holdback %
- Months to repay = total payback ÷ monthly remittance
- Simple annualized rate = (cost ÷ advance) ÷ (months ÷ 12)
The simple annualized rate treats the whole advance as outstanding until the end. In reality you repay from the first week, so the balance falls quickly and the true annual percentage rate, which accounts for that, is much higher. The table below shows both.
Merchant cash advance APR calculator worked example
| Advance | Factor | Holdback | Monthly sales | Months | Simple rate | APR (monthly payments) |
|---|---|---|---|---|---|---|
| $50,000 | 1.35 | 15% | $40,000 | 11.2 | 37.3% | 63% |
| $50,000 | 1.25 | 15% | $40,000 | 10.4 | 28.8% | 49% |
| $50,000 | 1.35 | 10% | $40,000 | 16.9 | 24.9% | 43% |
| $50,000 | 1.35 | 20% | $40,000 | 8.4 | 49.8% | 82% |
| $20,000 | 1.4 | 12% | $25,000 | 9.3 | 51.4% | 85% |
A $50,000 advance at a factor rate of 1.35 costs $17,500, for a total payback of $67,500. With 15% held back from $40,000 of monthly card sales, $6,000 a month goes to the provider, so it takes about 11.2 months to repay. Simply annualizing the cost gives 37.3%, but an APR that reflects the falling balance is about 63%, which is the figure the merchant cash advance APR calculator shows, and the true rate is a little higher still when payments are taken daily.
Factor rate is not an interest rate
A factor rate of 1.35 sounds like 35%, but that cost is paid over months, not a year, and on a balance that shrinks with every payment. The faster your sales, the faster you repay and the higher the effective APR, because the same fixed cost is paid over a shorter time. That is the opposite of a loan, where repaying early usually saves interest. Raise the monthly sales in the merchant cash advance APR calculator and you will see the rate climb. Many advances charge the full factor cost even if you repay early, so ask whether there is any discount for early payoff.
Required disclosures
Merchant cash advances are usually structured as purchases of future sales rather than loans, so federal lending disclosure rules do not apply. Some states now require providers to disclose an estimated APR for commercial financing. California’s rules, for example, require sales-based financing offers to show an estimated APR and a statement that the actual APR may differ. Ask any provider for a written estimated APR and compare it with the merchant cash advance APR calculator result.
Compare with other financing
- SBA-guaranteed loans: rates are capped and terms are longer, though approval takes longer.
- Business line of credit: pay interest only on what you draw.
- Equipment financing: secured by the equipment, often at lower rates.
- Invoice factoring: for businesses that invoice other businesses.
Estimates for planning only, not legal, tax or financial advice. Check carrier, card network, lender and state rules before relying on a figure.
Questions to ask before signing
- What is the total payback amount, in dollars, and is there any discount for paying early?
- Is the holdback a percentage of sales, or a fixed daily or weekly debit? A fixed debit does not fall when sales slow.
- What fees are deducted from the advance up front, such as origination or underwriting fees?
- What happens if sales drop: is there a reconciliation process that lowers payments?
- Does the agreement include a personal guarantee or a confession of judgment?
Up-front fees reduce the cash you actually receive, which raises the true cost. If $50,000 is approved but $1,500 is deducted at funding, enter $48,500 as the advance in the merchant cash advance APR calculator and keep the same payback to see the effect.
Avoid stacking advances
Taking a second advance before the first is repaid, known as stacking, means two providers take a share of the same sales. Cash flow can tighten quickly, and the combined cost can be very high. Run each offer through the merchant cash advance APR calculator, and add the remittances together to see how much of your monthly sales would go to repayments. If the total takes more than your margin, the business will need to borrow again just to keep going.
Related converters and calculators
Related calculators:
- Invoice factoring calculator: factoring
- Business loan calculator: term loans
- APR calculator: APR
- Loan calculator: loans
Sources
Cal. Code Regs. tit. 10, § 914: Sales-based financing disclosures; SBA: Loans; SBA: Fund your business.
Questions about this calculator
How do I convert a factor rate to APR?
Work out the cost and how long repayment takes, then annualize; an APR that accounts for the falling balance is higher than a simple division.
What does a 1.35 factor rate cost?
35 cents per dollar advanced: $17,500 on $50,000.
Why does faster repayment raise the APR?
The fixed cost is paid over a shorter time.
Do providers have to disclose APR?
Some states, such as California, require an estimated APR for commercial financing.
Is a merchant cash advance a loan?
Usually it is structured as a purchase of future sales, not a loan.
Check the assumptions and units before relying on a result. Financial, tax and health estimates do not replace advice for your individual circumstances.
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