Why use this calculator
A merchant cash advance is quoted as a factor rate, and a factor rate of 1.3 sounds like 30% interest. It is not. Because the provider starts collecting the next business day, you only have the full amount for a moment, and when the whole cost is paid over a few months the equivalent annual rate is often 60% to 150% or more.
That is why several US states now require providers to disclose an estimated APR, and why an owner comparing an MCA with a bank line of credit or an SBA loan needs a like-for-like number. This calculator turns the offer into a daily holdback you can test against your takings, a realistic repayment period, and an APR you can put next to any other finance option before you sign.
How to use it
- Enter the advance amount as the purchase price written in the agreement, before any fees.
- Enter the factor rate from the offer, or divide the total payback amount by the advance if only those are quoted.
- Enter the holdback percentage stated in the agreement as the share of receipts to be remitted.
- Enter average daily sales from the last three months of merchant or bank statements divided by the number of trading days.
- Enter how many days a week the provider debits you, usually five business days.
- Enter any origination or underwriting fees deducted from the funds you receive, which appear on the funding statement.
What each result means
- Total Repayment Amount
- The fixed amount the provider will collect, set by the factor rate. It does not fall if you repay faster, unlike a loan.
- Cash Taken Each Week
- The daily holdback multiplied by your trading days, which is how much of a normal week's takings goes to the advance provider. Check your rent, wages and suppliers can still be paid from what is left.
- Cost of Capital
- What the money costs in dollars: total repayment minus the cash you actually received after any fees.
- Net Cash Received
- The advance minus any fees deducted at funding. This is the money you can actually spend, and the base for the APR.
- Daily Holdback Amount
- The amount taken from each trading day's takings at your average sales. Check you can still pay staff and suppliers after it.
- Estimated Repayment Days
- How many trading days of holdbacks it takes to repay the full amount at your average sales.
- Estimated Repayment Months
- The repayment period in calendar months, allowing for weekends and non-trading days.
- Simple Annualised Cost
- The cost as a percentage of the cash received, scaled to a year. It understates the real rate because repayments start immediately.
- Estimated APR
- The annual interest rate a loan with the same daily repayments would carry. It is the fair figure to compare with loans and credit lines.
The formula
Total repayment = advance x factor rate
Daily holdback = daily sales x holdback %
Repayment days = total repayment / daily holdback
Calendar time = repayment days x 7 / trading days per week
Net cash received = advance - upfront fees
Cost of capital = total repayment - net cash received
Estimated APR = r x trading days per year
Simple annualised cost = cost / net cash received / (calendar days / 365)
How this number is used in practice
Merchant cash advances are legally structured in the US as a purchase of future receivables rather than a loan, which historically kept them outside usury limits and lending disclosure laws. That is changing: California, New York, Utah, Virginia and other states have introduced commercial financing disclosure rules, and several require an estimated APR on the offer.
Even where no disclosure is required, the APR calculated here is the right number to compare against a bank overdraft, a line of credit or an SBA 7(a) loan, which typically cost a small fraction of an MCA.
The cash flow bite matters as much as the cost. A 15% holdback on a business with a 10% net margin takes more than the business earns each day, so the owner is effectively funding the repayment from working capital. That is how businesses end up stacking a second advance to cover the first, which is the most common route to serious MCA distress.
An MCA can make sense for a short, specific opportunity with a clear return, such as stock for a confirmed large order, but it is rarely a sound answer to a general cash shortfall.
Worked examples
A $50,000 advance at a 1.3 factor, 15% holdback, $3,000 daily sales and five trading days a week
$65,000 repaid at $450 a day over 145 trading days (6.7 months), an estimated APR of about 98%
A $100,000 advance at a 1.4 factor, 20% holdback and $5,000 daily sales
$140,000 repaid at $1,000 a day over 140 trading days, a cost of $40,000 and APR of about 132%
A $30,000 advance at a 1.2 factor with $750 fees, 10% holdback and $1,500 daily sales
$36,000 repaid over 240 trading days (11.0 months) on $29,250 received, an APR of about 46%
When people use it
- Comparing two MCA offers with different factor rates and holdbacks
- Converting a factor rate into an APR to compare with a bank or SBA loan
- Checking whether the daily holdback leaves enough cash to operate
- Estimating how long the holdback will run before committing
- Explaining the true cost of an offer to a business partner or adviser
Tips
- Always convert the factor rate to an APR before comparing. A 1.3 factor repaid over about seven months is close to 100% a year.
- Compare the daily holdback with your daily net profit, not your sales. If it is larger, the advance will squeeze working capital.
- Ask for the total payback, all fees and any early payoff discount in writing before signing.
- Avoid stacking a second advance to repay the first. It is the most common path to MCA distress.
- Check first whether a bank line of credit, equipment finance or an SBA-backed loan is available. They are usually far cheaper.
- Read the reconciliation clause. It lets you ask for a lower payment if sales fall, which protects cash flow.
What it assumes, and where it stops being accurate
- Daily sales are constant. In practice the holdback moves with sales, so a slow season stretches repayment and lowers the effective rate.
- Some providers debit a fixed daily amount rather than a true percentage; this calculator treats the holdback at average sales as that fixed amount.
- APR is a nominal rate from the discount rate that equates the daily payments with the cash received, compounded per trading day and not annually.
- Upfront fees are deducted from the advance at funding. Fees added to the payback instead should be included in the factor rate.
- Ignores early payoff discounts, reconciliation adjustments and default fees, which vary by contract.
Terms used on this page
- Factor rate
- A multiplier on the advance amount that sets the total payback, for example 1.3 times.
- Holdback
- The percentage of daily card or bank receipts remitted to the provider until the advance is repaid.
- APR
- Annual percentage rate: the yearly cost of credit expressed as an interest rate on the balance outstanding.
- Stacking
- Taking a second cash advance while the first is still being repaid.
Questions people ask
- What is a factor rate and how does it differ from an interest rate?
- A factor rate is a fixed multiplier on the advance: 1.3 on $50,000 means $65,000 repaid whatever happens. An interest rate is charged per year on the balance still owed, so it falls as you repay. Because an MCA is repaid over months, a factor rate converts to a much higher annual rate.
- Why does faster repayment raise the APR?
- The dollar cost is fixed by the factor rate, so repaying it over a shorter period means paying the same cost for less time with the money. A $15,000 cost over twelve months is a much lower annual rate than the same $15,000 over four months.
- Is a merchant cash advance a loan?
- Legally, most are structured as a purchase of future receivables rather than a loan, which historically kept them outside usury and lending laws. Courts sometimes recharacterise them as loans if repayment is effectively guaranteed regardless of sales. Several US states now require APR-style disclosures on these products.
- When does an MCA make sense?
- Rarely, and only for a short-term opportunity with a clear return larger than the cost, when faster and cheaper finance is not available. Using an MCA to cover general losses or payroll usually makes the cash problem worse, because the daily holdback reduces cash flow for months afterward.
- What is a reasonable factor rate?
- Offers commonly range from about 1.1 to 1.5. Anything above 1.4 is expensive even by MCA standards. The factor rate alone is not enough, though: the same 1.2 can be a moderate or a punishing APR depending on how quickly the holdback repays it, so always check the APR and the timeline together.
Use this with
Merchant Cash Advance Calculator answers one part of the question. These pick up where it stops: Business Loan Calculator, APR to APY Converter, After-Tax Cost of Debt Calculator and Cash Flow Forecast Calculator.
Where these figures come from
Figures and rules on this page follow United States federal rules.
- U.S. Small Business Administration: Loans. SBA-backed loan programs as a lower-cost alternative
- Federal Trade Commission: Small businesses. Guidance on deceptive small business financing practices
- California Department of Financial Protection and Innovation. Commercial financing disclosure requirements, including estimated APR
Merchant Cash Advance Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.