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A factor rate is a decimal multiplier applied to your advance amount: not an interest rate. Multiply your advance by the factor rate to get total repayment (e.g., $50,000 × 1.35 = $67,500 total owed). To convert to approximate APR: divide the cost by the advance, then by months, then multiply by 12. A factor rate of 1.35 on a 6-month advance is roughly 70% APR.
The only MCA APR calculator that shows both simple APR and true APR (IRR declining balance method): so you can compare any merchant cash advance offer to any other type of financing on equal terms.
Factor Rate Conversion Reference
| Factor Rate | Cost on $50K | Total Repayment | Simple APR (6 mo) | True APR (6 mo) |
|---|---|---|---|---|
| 1.10 | $5,000 | $55,000 | 20% | ~39% |
| 1.20 | $10,000 | $60,000 | 40% | ~75% |
| 1.30 (avg) | $15,000 | $65,000 | 60% | ~109% |
| 1.40 | $20,000 | $70,000 | 80% | ~142% |
| 1.50 | $25,000 | $75,000 | 100% | ~174% |
True APR estimates based on IRR method with daily payments and 130 business-day (6-month) term. Use the calculator below for any combination.
Calculated by dividing the total cost (factor rate minus 1) by the term in years. This is the number most ISO disclosures use because it is easy to calculate and understand.
Use this when: comparing two MCA offers with the same term. Simple APR is an accurate relative cost measure when terms are equal.
Calculated by solving for the internal rate of return (IRR) on the daily payment stream: the interest rate that makes the present value of all payments equal the advance amount. This is the mathematically correct APR for a declining-balance product.
Use this when: comparing MCA to a bank loan, line of credit, or any product with a declining balance. The IRR method puts both on equal footing.
A bank loan charges interest on the outstanding balance, so as you repay, the interest charge shrinks. An MCA charges a fixed total cost set by the factor rate; as you repay, the outstanding balance shrinks but your daily payment stays the same. This means you are effectively paying the same fee on a smaller and smaller balance, which is equivalent to a rising interest rate on that declining balance. The IRR method captures this. Simple APR does not. The gap between simple and true APR widens as the term shortens.
| Financing Type | Typical APR | Cost vs. MCA | Approval Speed | Min. Credit |
|---|---|---|---|---|
| MCA (1.30 factor / 6mo) | ~109% true APR | Highest cost | 24 to 72 hours | 500 FICO |
| Business Credit Card | 18 to 30% | Much lower | Minutes (if pre-approved) | 640 FICO |
| Business Line of Credit | 8 to 30% | Much lower | 1 to 4 weeks | 660 FICO |
| CDFI Loan | 6 to 20% | Significantly lower | 2 to 8 weeks | 550 FICO |
| SBA 7(a) Loan | 10 to 13% | Significantly lower | 30 to 90 days | 640 FICO |
| Invoice Factoring | 15 to 50% | Lower | 1 to 5 days | No min. |
| Equipment Financing | 6 to 25% | Significantly lower | 1 to 2 weeks | 620 FICO |
| Bank Term Loan | 6 to 15% | Significantly lower | 30 to 60 days | 680 FICO |
MCA costs more than every alternative: but it approves faster, requires no collateral, has no minimum credit score above 500, and reaches merchants who cannot access any of the products above. The relevant comparison is not "MCA vs. bank loan" for a merchant who can get a bank loan. It is "MCA vs. no capital at all" for a merchant who cannot. That is the correct use case, and a transparent ISO will tell you whether you qualify for something cheaper before presenting an MCA offer.
| Industry | Avg. Factor Rate | Simple APR (6mo) | True APR (6mo) | Approval Rate | Avg. Advance |
|---|
True APR calculated using IRR method with 130 business days (6-month term). Full benchmark study →
| Credit Tier | Avg. Factor Rate | Simple APR | True APR (IRR) | Approval Rate |
|---|---|---|---|---|
| 700+ FICO | 1.15 | 30% | ~46% | 81% |
| 650 to 699 FICO | 1.23 | 46% | ~71% | 71% |
| 600 to 649 FICO | 1.29 | 58% | ~89% | 62% |
| 550 to 599 FICO | 1.36 | 72% | ~111% | 52% |
| 500 to 549 FICO | 1.43 | 86% | ~133% | 28% |
| Term | Factor Rate | Simple APR | True APR (IRR) | Daily Payment (on $50K) |
|---|
A 1.30 factor rate at 12 months has roughly half the effective APR of the same 1.30 factor rate at 6 months: because the cost is spread over twice the time. This means comparing MCAs on factor rate alone is only fair when the terms are equal. When a funder offers a "lower" factor rate but with a shorter repayment term, the true APR may actually be higher. Always compare on APR with the term held constant.
The true APR (IRR method) is calculated using the following approach:
This is identical to the method used to calculate APR on any amortizing loan (mortgage, auto loan, personal loan). We run 100 bisection iterations to achieve convergence to <0.0001% precision. The calculation assumes fixed daily ACH payments: the most common MCA repayment structure. Revenue-based "true split" structures will produce different effective APRs as actual revenue varies.
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Use this tool to evaluate any offer before accepting. Then apply through T.A.G.: we shop multiple funders and show you every offer side by side, with full cost disclosure before any commitment.
Apply Now → 330-238-3003T.A.G. Business Funding
Now that you know how to convert, get a real offer to compare. No obligation. Review the factor rate and total cost before committing.
500 FICO minimum · $4K to $6K+/month revenue · Funding timing is set by the funding provider after review
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