Factor Rates and Total Repayment: Understanding What an MCA Really Costs

Merchant cash advances usually express cost as a factor rate rather than an interest rate. Understanding how it works is the first step in comparing an MCA to any other option.

From factor rate to total repayment

Multiply the purchase price (the amount advanced) by the factor rate to get the purchased amount — the total the business agrees to remit. For example, a $50,000 advance at a 1.35 factor rate has a purchased amount of $67,500. The $17,500 difference is the cost of the advance before any fees.

Why the term matters

A factor rate is a fixed multiplier, so the cost is the same whether you repay in four months or twelve. That means the shorter the repayment period, the higher the effective annualized cost. Two advances with the same factor rate can have very different cash-flow effects depending on how quickly remittances are collected.

Don't forget fees

Origination, underwriting, or administrative fees are often deducted from the amount you receive. Compare what you actually receive (net proceeds) with what you'll repay.

Compare offers properly

Use our funding offer comparison calculator to compare total repayment, net proceeds, and payments side by side. If existing advances are already straining cash flow, see MCA debt relief.