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How it is calculated
| Total payback | Advance × factor rate. A $50,000 advance at 1.35 repays $67,500, of which $17,500 is cost. |
|---|---|
| Payment | Total payback ÷ number of payments. We count 21 business days a month and 252 a year, because weekends and holidays do not debit. |
| Simple annualised | Cost ÷ advance, scaled to twelve months. This is the number most people reach for, and it understates by roughly half because it pretends the merchant holds the whole advance for the whole term. |
| Estimated APR | The periodic rate that discounts the payment stream back to the advance, annualised — solved by bisection. This is what a lender would have to charge to be equivalent, and it is what disclosure regimes approximate. |
Where it stops being reliable
- State disclosure methodologies are prescribed and differ in their details. This is an estimate for comparison, not a compliant disclosure — if you need one of those, it comes from the funder.
- Fees change the answer. Origination, underwriting and ACH fees are cost, and leaving them out flatters the rate.
- A term is a modelling convenience. An advance with a genuine holdback has no fixed maturity, which is what the holdback calculator is for.
Questions
What is a 1.35 factor rate as an APR?
Repaid daily over six months on a $50,000 advance, roughly 126% APR. Over twelve months at the same factor it falls to about 63%, and over three months it rises to about 250%. The factor alone does not determine the rate — the term does at least as much work.
Why is the APR so much higher than the factor rate suggests?
Because repayment starts immediately. A merchant taking $50,000 at 1.35 never has $50,000 for six months; the average outstanding balance across the term is closer to half that, so the same dollar cost is earned on half the money. That is the whole gap between the simple number and the APR.
Is an APR the right way to think about an advance?
It is the right way to compare one against a loan, which is the comparison merchants actually make. It is a poor description of the product itself, because an advance has no fixed term — that is why Utah and Georgia legislated against requiring one, and why California and New York require one anyway.
Which states require an APR on a merchant cash advance?
California and New York require an estimated annualised rate in their commercial financing disclosures. Georgia expressly does not, and Utah chose a dollar-cost disclosure instead. The other disclosure states are built around total cost and the payment schedule.