Why use this calculator
Merchant cash advances (MCAs) provide fast funding but come at a significantly higher cost than traditional loans. Unlike conventional financing quoted with interest rates, MCAs use factor rates that can obscure the true cost of borrowing. This calculator translates factor rates into total repayment amounts and effective APRs so you can make informed comparisons. Understanding the daily holdback impact on your cash flow is equally important before committing to an MCA.
How to use it
Enter the advance amount you are considering, the factor rate offered by the MCA provider, the daily holdback percentage (the portion of daily sales that will go toward repayment), and your average daily sales volume. The calculator reveals the total repayment, cost of capital, daily deduction from your sales, and estimated repayment timeline.
The formula
Total Repayment = Advance Amount x Factor Rate. Cost of Capital = Total Repayment - Advance Amount. Daily Holdback = Daily Sales x Holdback %. Repayment Days = Total Repayment / Daily Holdback. Effective APR = (Cost / Advance) / (Days / 365) x 100.
Worked examples
A $50,000 advance with a 1.3 factor rate, 15% holdback, and $3,000 daily sales
Total repayment of $65,000 ($15,000 cost), $450/day holdback, repaid in approximately 144 days with an effective APR of around 76%
A $100,000 advance with a 1.4 factor rate, 20% holdback, and $5,000 daily sales
Total repayment of $140,000 ($40,000 cost), $1,000/day holdback, repaid in approximately 140 days with an effective APR of around 104%
When people use it
- Comparing MCA offers from different providers on an apples-to-apples basis
- Understanding the daily cash flow impact of a merchant cash advance
- Converting factor rates to effective APRs for comparison with traditional loans
- Evaluating whether the cost of fast funding justifies the premium over conventional financing
Tips
- Factor rates of 1.1-1.2 are favorable; above 1.4 is expensive even by MCA standards
- Always calculate the effective APR to compare against alternative financing like business lines of credit or SBA loans
- Higher daily sales can shorten repayment time but the total cost remains the same regardless of speed
- Consider the cash flow impact: a 15% holdback means 15 cents of every dollar in sales goes to repayment
Questions people ask
- What is a factor rate and how does it differ from an interest rate?
- A factor rate is a fixed multiplier applied to the advance amount to determine total repayment. Unlike interest rates, factor rates do not decrease as you pay down the balance. A factor rate of 1.3 on $50,000 always means $65,000 total repayment regardless of how quickly you repay. This makes MCAs significantly more expensive than traditional loans with comparable stated rates.
- Is a merchant cash advance a loan?
- Technically no. An MCA is structured as a purchase of future receivables, not a loan. This distinction means MCAs are not subject to usury laws or many lending regulations. The MCA provider buys your future sales at a discount and collects by taking a percentage of daily credit card or bank sales until the full amount is recovered.
- When does an MCA make sense?
- MCAs can be appropriate when you need funding quickly (1-3 days), have been denied traditional financing, have strong and consistent daily sales, and the funding will generate returns that exceed the MCA cost. They should generally be a last resort due to high effective APRs that often exceed 50-150%.