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Factor Rate to APR Converter

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.

1.10 (best)1.50 (highest risk)
1.30
Drag to set factor rate
Term affects APR — same factor rate costs more (higher APR) at shorter terms
$
Cost Breakdown
Effective APR Range
0%50%100%150%200%+
Factor Rate 1.30
Total Repayment $65,000
Cost of Capital $15,000
Daily Payment $500/day
Simple APR
flat cost ÷ term 60%
True APR (IRR)
declining balance method 97%
Simple APR vs. True APR — Why There Are Two Numbers
Most MCA cost disclosures use simple APR. True APR is higher — here is why both numbers matter and which one to use when comparing offers.
Simple APR
60%

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.

Simple APR = (Factor Rate − 1) ÷ Term (years) × 100

Example: (1.30 − 1) ÷ 0.5 years × 100 = 60%

Use this when: comparing two MCA offers with the same term. Simple APR is an accurate relative cost measure when terms are equal.

True APR (IRR Method)
97%

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.

Solve for r where:
Advance = Σ (DailyPmt ÷ (1+r)^t)
for t = 1 to n days
True APR = r × 260

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.

Why True APR Is Always Higher for MCAs

A bank loan charges interest on the outstanding balance — 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.

Your Factor Rate at This Term vs. Other Financing
At a 1.30 factor rate and 6-month term — how does this compare to every other type of business financing?
Financing Type Typical APR Cost vs. MCA Approval Speed Min. Credit
MCA (1.30 factor / 6mo) ~97% true APR Highest cost 24–72 hours 500 FICO
Business Credit Card18–30%Much lowerMinutes (if pre-approved)640 FICO
Business Line of Credit8–30%Much lower1–4 weeks660 FICO
CDFI Loan6–20%Significantly lower2–8 weeks550 FICO
SBA 7(a) Loan10–13%Significantly lower30–90 days640 FICO
Invoice Factoring15–50%Lower1–5 daysNo min.
Equipment Financing6–25%Significantly lower1–2 weeks620 FICO
Bank Term Loan6–15%Significantly lower30–60 days680 FICO
Why MCA Still Gets Funded

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 Benchmarks: Factor Rate → APR by Industry
Average factor rates from the 2026 MCA Factor Rate Benchmark Study converted to both simple and true APR at a standard 6-month term.
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 →

APR by Credit Score Tier
Your credit score affects the factor rate you receive, which directly affects your effective APR. All conversions below use a 6-month estimated term.
Credit Tier Avg. Factor Rate Simple APR True APR (IRR) Approval Rate
700+ FICO1.1530%~46%81%
650–699 FICO1.2346%~71%71%
600–649 FICO1.2958%~89%62%
550–599 FICO1.3672%~111%52%
500–549 FICO1.4386%~133%28%
How Term Length Changes Your APR
The same factor rate produces dramatically different effective APRs at different term lengths. This is the most misunderstood aspect of MCA cost math.
Term Factor Rate Simple APR True APR (IRR) Daily Payment (on $50K)
The Shorter the Term, the Higher the APR

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.

How We Calculate True APR

The true APR (IRR method) is calculated using the following approach:

  1. Total repayment = Advance × Factor Rate
  2. Daily payment = Total Repayment ÷ Business Days in Term
  3. Find the daily rate r using bisection: solve for the rate where the present value of all daily payments equals the advance amount: Advance = Σ (DailyPmt ÷ (1+r)^t) for t = 1 to n days
  4. Annualize: True APR = r × 260 business days per year

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.

Cite This Tool

T.A.G. Business Funding. (2026). Factor Rate to APR Converter. [Interactive Tool]. https://funding.towersassetgroup.com/factor-rate-to-apr
Related research: 2026 MCA Factor Rate Benchmark Study  |  2026 MCA Market Report
Frequently Asked Questions
How do you convert a factor rate to APR?
Two methods. Simple APR: (factor rate − 1) ÷ term in years. A 1.30 factor rate at 6 months = (0.30 ÷ 0.5) × 100 = 60%. True APR (IRR): solve for the daily interest rate where the present value of all daily payments equals the advance, then multiply by 260 business days. A 1.30 factor rate at 6 months produces approximately 97% true APR — significantly higher because it accounts for the declining balance effect.
Why is true APR higher than simple APR for MCAs?
Because you pay a fixed daily amount on a declining balance. As you repay, your outstanding balance shrinks — but the total cost is already fixed by the factor rate. You are effectively paying the same total fee on less and less outstanding balance, which equals a rising effective rate. The IRR method captures this compounding effect. Simple APR assumes you owe the full advance for the entire term, which overstates the outstanding balance and understates the effective rate.
Is MCA factor rate the same as an interest rate?
No. A factor rate is a flat cost multiplier applied once to the advance amount. A 1.30 factor rate on $50,000 means you owe $65,000 total — period. This differs from an interest rate, which accrues on the remaining balance over time. Converting to APR is a comparability exercise, not a description of how MCA is priced — MCA is not priced in APR terms by funders.
What factor rate should I expect on an MCA?
Based on the 2026 MCA Factor Rate Benchmark Study: the average across all industries is 1.29. Range is 1.10 (strongest profiles) to 1.50 (highest risk). Healthcare averages 1.22 (lowest). Food trucks average 1.36 (highest). 700+ FICO: average 1.15. 500–549 FICO: average 1.43.
Does early payoff save money on an MCA?
In most traditional MCA agreements, the total repayment is fixed — paying off early does not reduce the total cost. Some agreements include early payoff discount clauses (buyout discounts), but these must be explicitly stated in your contract. Ask before you sign. On a true revenue-based split-withholding MCA, a faster-than-expected payoff doesn't reduce the factor rate, but it does mean you reach the same total repayment faster — which raises your effective APR.
How does MCA APR compare to other financing?
At 1.29 average factor rate and 6-month term, effective true APR is approximately 90%. Compared to: SBA 7(a) (10–13%), CDFI loan (6–20%), business line of credit (8–30%), business credit card (18–30%). MCA costs significantly more than all alternatives — which is why a transparent ISO recommends lower-cost options first when you qualify and your timeline allows it.
Related Tools & Research
MCA CalculatorTotal repayment, daily payment, and scenario comparison Factor Rate Benchmark Study2026 average rates by industry and credit tier 2026 MCA Market ReportIndustry statistics, approval rates, regulatory landscape MCA vs SBA LoanFull cost and eligibility comparison

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