Merchant Cash Advance Cost Calculator

A factor rate is not an interest rate.

A factor rate is not an interest rate. A factor rate of 1.3 sounds like 30% interest.

Written and maintained by Mohit PatelLast checked August 4, 2026How we build these

Currency

Advance received

Factor rate

Daily holdback on card sales

Monthly card sales

Bank loan APR for comparison

Merchant cash advances are quoted as factor rates rather than interest, which makes them look cheaper than they are. The annualised figure below is what the same money would cost as a loan.

Effective annualised cost

146%

$15,000 to borrow $50,000

Total repayable$65,000

Cost of the advance$15,000

Days to repay150 days

Same money as a bank loan$974

A factor rate of 1.30 sounds like 30%. Repaid over 150 days it is roughly 146% annualised, because the principal amortises while the fee does not. That can still be the right decision when speed matters. It is rarely the right decision when it does not.

How the Merchant Cash Advance Cost Calculator works

A factor rate of 1.3 sounds like 30% interest. Repaid over six months through a daily holdback it is several times that annualised, because the principal amortises while the fee does not. That can still be the right decision when speed matters and is rarely right when it does not.

Also known as: MCA factor rate cost · revenue advance true cost · merchant advance APR

How the structure works

A merchant cash advance is not a loan. It is a purchase of future receivables at a discount: the provider advances a sum and takes a fixed percentage of your daily card takings until a predetermined total is repaid.

The total is set by a factor rate rather than an interest rate. A factor of 1.3 on a £40,000 advance means you repay £52,000, however long it takes.

That distinction is not pedantry. Because it is a purchase rather than a loan, it sits outside consumer credit regulation in most jurisdictions, which is why the disclosure requirements are lighter and why the effective rate is rarely quoted.

Working out what it actually costs

The factor rate tells you the total repayment and nothing about the rate, because the rate depends on how quickly you repay. Repaying £52,000 on a £40,000 advance over twelve months is roughly 27% annualised. Repaying the same amount over six months is closer to 55%.

Faster repayment costs more, which is the opposite of a loan and catches people out. A business trading well repays quickly and pays a higher effective rate for it.

Work it properly: total repayment minus advance, divided by the advance, divided by the repayment period in years, adjusted for the declining balance. Typical effective annual rates on merchant cash advances run 40% to 80%, and figures above 100% are not rare on short repayment periods.

What it is genuinely good for

Speed and accessibility, which are real advantages. Approval is often within 24 to 48 hours, documentation is light, and the underwriting is based on card takings rather than on accounts or credit history. A business that cannot get a bank facility can usually get an advance.

The repayment mechanism has a genuine merit too. Taking a percentage of daily takings means repayment falls when trading falls, which is more forgiving than a fixed monthly payment in a volatile business.

Which makes it defensible for a short, specific, high-return use: buying stock for a known peak, funding a confirmed opportunity, or bridging a genuine timing gap. It is not defensible as general working capital, because the cost accumulates faster than most businesses can outgrow it.

The trap of stacking and renewal

The common failure pattern is renewal. The advance repays, cash is tight because a percentage of takings has been going out, and a new advance is offered and taken. Businesses can end up permanently financed at 60% effective rates.

Stacking is worse: taking a second advance while the first is outstanding, so two providers are each taking a percentage of daily takings. The combined deduction can reach a level where the business cannot fund its own operations, and the outcome from there is usually terminal.

Most agreements prohibit stacking and it happens anyway. The signal to watch for is needing the renewal to cover ordinary operating costs rather than a specific opportunity. At that point the advance is not funding growth; it is funding the cost of the previous advance.

What to try first

A bank overdraft or business credit card at 15% to 25% is a fraction of the cost and worth an application even if it feels unlikely to succeed. Rejection costs an afternoon.

Supplier terms cost nothing and are frequently available for the asking. Extending payment on a stock order by 30 days achieves the same cash effect as a short advance at no cost at all.

Invoice finance, for anyone with trade receivables, is considerably cheaper than an advance. And for pure inventory funding, a specialist inventory facility is usually half the cost or better. Merchant cash advances should be the option chosen after these have been tried, and they are frequently the option chosen first because the advertising is better and the application is shorter.

Where to go next

The Merchant Cash Advance Cost question rarely arrives on its own. These are the ones that usually come with it:

Business Loan Repayment Calculator — Amortising loans cost less than they look.
Line of Credit Cost Calculator — Fees on the facility, interest on the balance.
Inventory Financing Calculator — What share of gross profit the money costs.
Etsy Fee Calculator — Every Etsy fee on one sale, itemised.

Not financial advice. Marketplace fees change, and they vary by country, plan and seller status. Every rate here is an editable default, not a quoted price, check the platform's current fee schedule before you price a product against it. This is not tax or business advice.

Frequently asked questions

What is a factor rate?

A multiplier on the advance rather than an interest rate. A 1.3 factor on £50,000 means repaying £65,000, regardless of how quickly you repay it.

Why does the annualised cost look so much higher?

Because the fee is fixed and the balance falls as you repay. Paying a fixed £15,000 fee over six months on a declining balance is equivalent to a very high annual rate.

When does an advance make sense?

When speed or a lack of alternatives makes it the only option, and the use of funds returns more than the cost. Buying stock for a known selling season can clear that bar; covering a shortfall usually cannot.

What is the daily holdback?

A percentage of daily card takings automatically diverted to repayment. It flexes with sales, which is the genuine advantage, repayment slows in a bad month.