How the math actually works
A merchant cash advance is not a loan — it is a sale of future receivables. That distinction changes how the cost is calculated. There is no interest rate; there is a factor rate, a fixed multiplier applied to your advance amount up front. Here is the entire formula:
Worked example
The total dollar cost is fixed. It does not increase if repayment takes longer. It does not decrease if you pay it off early (unless your contract includes an early-payoff discount — most do not). This is the single biggest mental shift business owners need when comparing an MCA to a traditional loan.
What each input means
Advance amount
The lump sum you receive at funding. Most lenders fund between $5,000 and $500,000 on a single advance; $1 million and above is possible with strong revenue but uncommon. The amount you qualify for is typically 80–125% of your average monthly revenue. So if you average $80K/month in deposits, expect offers in the $64K–$100K range.
Factor rate
A decimal between 1.10 and 1.50 that determines how much you repay. A 1.10 factor is excellent (10% cost); a 1.50 is high-risk pricing. The factor rate depends on:
- Credit score — 700+ gets you 1.15–1.25; 550–650 gets you 1.30–1.40; below 550 typically lands at 1.40+
- Time in business — under 12 months adds 0.05–0.10 to the factor
- Industry risk — restaurants, bars, gas stations, and seasonal businesses pay more
- Existing MCA balances — stacking (taking a second MCA while one is open) often adds 0.10+
- Lender competition — this is where a broker matters. One direct offer = the lender's pricing. Multiple competing offers = lower factor rates.
Term length
How long until the advance is repaid in full. MCAs typically run 6 to 18 months. The calculator caps at 24 months because anything longer is the wrong product — if you need a 2+ year payback, you want a term loan, not an MCA. Term length affects only the speed of repayment and your daily/weekly debit; it does not change the total cost.
Two payment structures exist:
- Daily ACH — fixed amount pulled every business day (Mon–Fri). The calculator's “daily payment” reflects this.
- Percentage holdback — lender takes a share (typically 8–20%) of each day's card sales instead of a fixed amount. Your debit flexes with revenue. The calculator's daily payment is the average if your revenue is steady.
Some lenders also offer weekly ACH as an alternative for businesses that prefer one larger pull per week instead of small daily pulls.
About that “Effective APR equivalent”
You will notice the APR equivalent in the calculator often shows 40–100%+. This is not deceptive lending — it is the honest annualized cost of short-term capital. The dollar cost is fixed; the APR is just a way of expressing that cost on a 365-day annual basis so you can compare it to a traditional loan.
Why so high? Because an MCA repaid in 6 months costs the same dollars as it would over 12 months, but on an annualized basis the 6-month version is twice as expensive in APR terms. Always compare APR to APR, not APR to factor rate — they are not the same number on the same scale.
For most small businesses, the right question is not “is this APR high?” but “does this funding generate more value than its cost over the next 6–12 months?” A restaurant that takes a $50,000 advance to buy new equipment that adds $8,000/month in revenue earns the cost back in two months and runs the rest at profit.
How to lower your real cost
- Improve your credit score above 600 before applying. Even 30 points can drop your factor rate by 0.05.
- Show consistent revenue — no NSFs, no negative days, ideally 3+ months of growth.
- Avoid stacking. A second MCA while one is open puts you in the highest pricing tier.
- Apply through a broker. A single direct lender gives you one offer. A broker submits to 50+ lenders simultaneously, generating competing offers. The lowest factor rate wins.
- Negotiate the holdback. If cash flow is tight, ask for 10% instead of 15%. The total cost is identical — just slower repayment.
- Read the contract for fees. Origination fees, ACH fees, and underwriting fees can add 1–4% to the real cost. The calculator above does not include these.