June 25, 2026
What Is a Factor Rate? How to Calculate Your Real MCA APR
Published by Gradino · Free tools for merchants · gradino.com
A factor rate is how merchant cash advance funders express the cost of your deal. It looks simple. It is not the same as an interest rate. And most merchants never find out what their deal actually costs until it's too late.
Here's exactly how it works — and how to calculate your real APR.
What Is a Factor Rate?
A factor rate is a multiplier applied to the amount you borrow. It is expressed as a decimal, typically between 1.1 and 1.5.
If you borrow $100,000 at a factor rate of 1.3, you pay back $130,000. The $30,000 is the cost of the deal.
That's it. Simple math.
The problem is what it hides.
Factor Rate Is Not an Interest Rate
This is the most important thing to understand.
An interest rate is calculated over time. If you pay off a loan early, you pay less interest. The cost goes down the faster you pay.
A factor rate is fixed the moment you sign. It does not go down if you pay early. Pay off your MCA in 3 months instead of 12 — you still owe the full $130,000. The cost of the deal never changes.
This is why factor rates look small and affordable on paper — 1.3 sounds nothing like 130% — but the real cost, measured as an annual percentage rate, is almost always much higher than it appears.
How to Calculate Your Real APR From a Factor Rate
This is the calculation your funder never showed you.
The formula:
APR = ((Total Payback − Amount Borrowed) ÷ Amount Borrowed) ÷ Term in Days × 365 × 100
Example:
- Amount borrowed: $100,000
- Factor rate: 1.3
- Total payback: $130,000
- Daily payment: $1,000
- Term: 130 days (130,000 ÷ 1,000)
Plug it in:
($130,000 − $100,000) ÷ $100,000 = 0.30
0.30 ÷ 130 days × 365 × 100 = 84.2% APR
That's a best-case scenario with a relatively low factor rate and a longer term.
Now run it with a factor rate of 1.49 and a 90-day term:
- Amount borrowed: $100,000
- Total payback: $149,000
- Daily payment: $1,655
- Term: 90 days
($149,000 − $100,000) ÷ $100,000 = 0.49
0.49 ÷ 90 × 365 × 100 = 198.8% APR
Same deal. Different numbers. Nearly 200% APR.
Why Funders Use Factor Rates Instead of APR
Funders are not legally required to show you your APR. The Truth in Lending Act applies to loans. MCA is structured as a purchase of future receivables — not a loan — so the disclosure requirements are different.
Factor rates are not deceptive by design. They are a legitimate way to express a fixed-cost product. But the framing makes the cost look smaller than it is, and most merchants never run the APR calculation themselves.
Some states are changing this. California, New York, Utah, Virginia, and Georgia now require MCA funders to disclose APR. But disclosure requirements vary and enforcement is still developing. In most states, you are on your own.
What's a "Good" Factor Rate?
There is no universal answer. What matters is APR in the context of your term length.
As a rough guide:
| Factor Rate | 6-Month Term APR | 12-Month Term APR |
|---|---|---|
| 1.10 | ~66% | ~33% |
| 1.20 | ~133% | ~66% |
| 1.30 | ~200% | ~100% |
| 1.40 | ~266% | ~133% |
| 1.49 | ~325% | ~163% |
The shorter your term, the higher your APR — even with the same factor rate. A 1.2 factor rate on a 3-month deal costs more annualized than a 1.3 factor rate on a 12-month deal.
This is why you cannot evaluate an MCA deal on factor rate alone. You need the full picture — factor rate, daily payment, and term length — to understand what you're actually paying.
Other Costs That Affect Your Real APR
Factor rate is not the only cost in your deal. These fees add to your total cost and are often buried in the contract:
Origination fees — charged upfront, deducted from your funding before it hits your account. If you borrow $100,000 with a 3% origination fee, you receive $97,000 but still owe $130,000.
Administrative fees — recurring charges added on top of your daily payment.
NSF fees — charged when a daily debit fails due to insufficient funds.
Renewal fees — charged when you roll an existing deal into a new one before payoff.
All of these increase your effective APR beyond what the factor rate calculation shows.
How to Find Your Real APR Right Now
You need three numbers from your contract or funding agreement:
- The amount funded
- The total payback amount
- Your daily or weekly payment amount
From those three numbers you can calculate your term length and your real APR.
If you don't have those numbers or can't find them in your contract, that's a problem worth paying attention to.
Enter your numbers and see your real APR in 60 seconds. No signup. No calls. No pitch.
What to Do With This Information
Knowing your APR doesn't automatically mean your deal is bad. Some merchants pay high APR rates for short-term capital and it makes sense for their business. Urgency, credit profile, and options all factor in.
What it means is that you can make an informed decision — something your funder was never required to help you do.
If your APR is higher than you expected, you have options. You may be able to refinance at a lower rate if your business has improved since you originally funded. You may qualify for conventional financing that wasn't available before.
The Funding Compass matches you with options based on your actual situation. Free. No calls.
The Bottom Line
A factor rate tells you how much you pay back. It does not tell you what your deal costs relative to other financing options.
To know your real cost, you need your APR. To get your APR, you need the term length. To get the term length, you need your daily payment and your total payback amount.
Run the math. Know your number. That's all Gradino is here to help you do.
Gradino is a free, independent platform for merchants who have taken MCA funding. Merchants never pay. We never call you, sell your data, or take hidden commissions. gradino.com