Factor Rate to APR. The conversion that matters.
A 1.30 factor rate isn't 30% interest. Over 6 months it is a 60% simple annualized cost — and because you repay as you go, roughly a 109% APR estimate on daily remittances. This converter shows both numbers, labelled, plus a comparison matrix across common terms.
Your inputs: (1.30 − 1) ÷ (6 ÷ 12) × 100 = 60.0%
APR estimate: solve r from advance = payment × (1 − (1 + r)−N) ÷ r, then APR = r × periods/year
Your schedule: N = 126 daily payments of $1,032 per $100,000 → r = 0.65% per period × 252 = 109.3%
Nominal APR, before origination/ACH fees. Not an offer.
Factor rate × payback period = APR estimate
The same factor rate produces wildly different APRs depending on payback speed. Each cell shows the APR estimate on daily business-day remittances, with the simple annualized cost beneath it. A 1.30 factor over 12 months is 30% simple cost but about 55% APR; the same 1.30 factor over 3 months is 120% simple cost and roughly 217% APR — among the most expensive small business financing on the market. Always compare on the APR estimate, not the factor rate.
| Factor rate | 3 months | 6 months | 9 months | 12 months | 18 months |
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Factor rates obscure true cost on purpose.
An MCA quote will say "1.30 factor rate" because that sounds like 30% — in the same range a credit card hits during the worst part of an introductory promotional cycle. But factor rates are not annualized rates. A 1.30 factor on a 6-month payback is a 60% simple annualized cost — and about a 109% APR once you account for the daily remittances that pay the balance down from day one. On a 3-month payback it is 120% simple cost and roughly 217% APR.
This is why five states (NY, CA, UT, VA, CT) now require MCA APR disclosure under their commercial finance disclosure laws. The remaining 45 states still permit factor-rate-only quoting at the offer stage, which is a deliberate choice to keep cost comparisons hard.
The math: two numbers, never conflated
Simple annualized cost = (factor rate − 1) ÷ (payback period in years) × 100. The factor minus one gives you the cost percentage; dividing by the payback period in years spreads it over a year. A 1.40 factor over 9 months: (0.40) ÷ (0.75) × 100 = 53.3%. This is the quick mental-math figure — useful, but it assumes you keep the whole advance for the whole term, which you don't.
APR estimate (payment-schedule based) is computed the way a loan APR is: from the actual remittance schedule. With N equal payments, each equal to (advance × factor) ÷ N, solve the periodic rate r from advance = payment × (1 − (1 + r)−N) ÷ r, then annualize as nominal APR = r × payments per year (252 business days, 52 weeks, or 12 months). Worked example: $100,000 at a 1.30 factor repaid in 6 monthly payments of $21,666.67 → r ≈ 8.05% per month → APR ≈ 96.6%, not 60%. The same deal on daily business-day remittances (126 payments of about $1,032) → r ≈ 0.43% per day → APR ≈ 109%. That 1.40 factor over 9 months, remitted daily, is about 95% APR.
Why the gap? Because you start paying back on day one, you only have about half the advance outstanding on average while paying the full fixed cost. A rate is charged on what you still owe, so the honest rate is higher — and the gap widens as the term shortens. Neither figure includes origination or ACH fees, which push the real cost higher still.
What's a reasonable APR for an MCA?
On the payment-schedule basis, most legitimate MCAs land somewhere between roughly 60% and 200% APR; published industry ranges run from about 40% to 350%. Below 60% is exceptional — usually a prime-credit borrower with strong revenue on a 12–18 month term. 60–120% is the lower-mid tier, generally a good outcome for the average small business. 120–200% is the upper-mid tier, common for less-than-prime credit or short terms. Above 200% APR, you're in the most expensive corner of the market — usually because the factor rate is high and the payback period is short. Whichever tier you land in, the dollar cost is fixed at signing; the APR tells you how hard those dollars hit for how long.
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