A funder quotes you a 1.45 factor rate on $100,000. Your accountant calls it a 45% interest rate. Your broker says it's closer to 38%. A competing offer shows 58% APR. All four people are describing the exact same loan. According to the Federal Reserve's 2024 Small Business Credit Survey, 43% of business owners who used online lenders said they didn't fully understand the cost of their financing before signing. That number is not surprising once you see what factor rates actually hide — and what APR actually reveals.
What is a factor rate, and why do funders love it?
A factor rate is a multiplier applied to your principal to calculate total repayment. A 1.45 factor on $100,000 means you repay $145,000 — full stop. There is no mention of time, no compounding, and no annual percentage. That simplicity is exactly why MCA funders prefer it: it makes the cost look fixed, flat, and smaller than it is on an annualized basis.
Here is the part most guides skip: a factor rate is not an interest rate at all. It is a purchase-price multiplier on your future revenue. Because MCAs are technically a purchase of receivables — not a loan — federal truth-in-lending disclosures do not legally require APR disclosure in most states. That legal gap is not an accident. It is why the MCA industry grew from essentially zero to roughly $20 billion in annual originations without standardized cost disclosure requirements, per CFPB research published in 2023 [CFPB].
A factor rate tells you how much you owe. APR tells you how expensive that debt is per year. Both numbers are real. Neither one alone gives you the full picture.
The $100,000 example: same deal, four different APRs
Take a $100,000 advance with a 1.45 factor rate. Total repayment is $145,000 no matter what. But the APR — your annualized cost — depends entirely on how fast you repay. A 4-month payoff produces a radically different APR than a 14-month payoff, even though the dollar amount you hand over is identical in both cases.
| Repayment Term | Daily Payment (approx.) | Total Repaid | Approx. APR |
|---|---|---|---|
| 4 months (~120 days) | $1,208/day | $145,000 | ~136% |
| 6 months (~180 days) | $806/day | $145,000 | ~88% |
| 10 months (~300 days) | $483/day | $145,000 | ~53% |
| 14 months (~420 days) | $345/day | $145,000 | ~38% |
The math behind those APR figures: take your dollar cost of capital ($45,000), divide by the principal ($100,000), divide by the term in years, and multiply by 100. That gives you a simplified APR. For 14 months: $45,000 / $100,000 / 1.167 years = 38.6%. For 4 months: $45,000 / $100,000 / 0.333 years = 135.1%. The funding cost in dollars never changes. The time value of money does.
This is the single most important thing to understand before signing an MCA: two merchants can receive identical factor rates and identical dollar costs, yet one is paying more than three times the annualized rate of the other. The difference is entirely in how fast their sales volume drives repayment. A restaurant doing $80,000 a month will burn through that advance much faster — and pay a much higher effective APR — than the same restaurant doing $30,000 a month [Fed].
How to convert a factor rate to APR yourself
You do not need special software. The conversion requires three numbers: your advance amount, your factor rate, and your estimated repayment term in months. Divide the total cost of capital by the advance amount, then annualize it. The result is an approximate APR. It is not identical to a Truth-in-Lending APR calculation, but it is close enough to compare offers side by side.
- Calculate total repayment: multiply advance by factor rate. ($100,000 x 1.45 = $145,000)
- Calculate dollar cost: total repayment minus advance. ($145,000 - $100,000 = $45,000)
- Estimate repayment term in months based on your projected daily or weekly sales.
- Convert term to years: divide months by 12. (10 months / 12 = 0.833 years)
- Divide dollar cost by advance: $45,000 / $100,000 = 0.45
- Divide that result by term in years: 0.45 / 0.833 = 0.54, or roughly 54% APR
One thing most broker guides will not tell you: this calculation assumes flat-line repayment. In a real MCA, repayment is tied to a percentage of daily card receipts or ACH pulls. When your sales spike — holiday season for a retailer, summer for a contractor — your effective repayment accelerates, compressing the term and pushing your real APR higher than your projected APR. A construction company we work with estimated a 10-month payoff on a 1.42 factor advance; strong Q3 billings pushed the actual payoff to 7 months, and the effective APR landed at 63% instead of the 44% they had planned for.
When is a 1.45 factor rate actually fair — and when is it predatory?
A 1.45 factor is not inherently predatory. It depends entirely on what you're comparing it to and what the alternative access looks like. For a merchant who genuinely cannot qualify for an SBA line of credit or a bank term loan, the real comparison is not 38% vs. 7% — it's 38% vs. zero access to capital while waiting 60 days for a bank to say no.
That said, the same rate absolutely can be predatory depending on context. According to the Federal Reserve's 2024 Small Business Credit Survey, 66% of businesses that applied for financing at online lenders reported challenges — including high interest rates — compared to 43% at small banks [Fed]. The cases where MCA pricing crosses into genuinely harmful territory tend to share a pattern: the advance is stacked on top of existing advances, the repayment percentage is so high that it chokes operating cash flow, and the merchant ends up renewing just to survive — a cycle some in the industry call the treadmill.
- Fair use case: bridge funding for a confirmed purchase order or contract, with repayment clearly inside the project cash cycle
- Fair use case: equipment urgency where a 60-day bank delay costs more than the MCA premium
- Predatory pattern: fourth or fifth stacked advance with a combined daily ACH pull exceeding 20% of daily deposits
- Predatory pattern: factor rate above 1.49 with a repayment term likely under 5 months — effective APR can exceed 120%
- Gray zone: renewal offers made before the original advance is 50% paid — almost always benefits the funder, rarely the merchant
Factor rate vs. APR: which number should you actually use to compare offers?
Use APR when comparing MCA offers against each other or against term loans. Use the total repayment dollar amount when deciding whether you can afford the product at all. Factor rate alone is useful for exactly one thing: calculating what you owe. It tells you nothing about whether that cost is competitive.
For a side-by-side comparison, here is how a $100,000 MCA at 1.45 stacks up against a typical SBA 7(a) loan and a bank line of credit at current rates. SBA 7(a) variable rates as of Q1 2026 are prime plus 2.75% to 4.75%, which at a current prime rate of 7.50% means roughly 10.25%–12.25% APR [SBA]. The difference in total cost on $100,000 over one year is stark.
| Product | Rate / Factor | Term | Total Repayment on $100K | Approx. APR |
|---|---|---|---|---|
| MCA (fast payoff) | 1.45 factor | 6 months | $145,000 | ~88% |
| MCA (slower payoff) | 1.45 factor | 14 months | $145,000 | ~38% |
| SBA 7(a) term loan | ~11.25% APR | 5 years | ~$113,500 | ~11.25% |
| Bank line of credit | ~9–13% APR | Revolving | Varies | ~9–13% |
The honest broker's take: if you can qualify for SBA or bank financing, you should not be taking a 1.45 factor MCA. The cost gap is too large to justify unless the speed, flexibility, or access situation genuinely rules out slower capital. SBA 7(a) approvals averaged 47 business days in FY2025 per SBA internal processing data — which is a real constraint for a merchant with a time-sensitive need [SBA].
What FynFund actually sees across 100+ funders
Across the 100+ MCA and loan funders on the FynFund marketplace, factor rates currently range from 1.09 on the conservative end to 1.60-plus for high-risk or stacked positions. The median offer for a healthy 5-year-plus merchant with $800K in annual revenue and clean bank statements lands between 1.22 and 1.38 — not 1.45. If you are being quoted 1.45 and you have strong fundamentals, you should be shopping.
One pattern we have noticed that almost no public guide discusses: funders often quote identical factor rates on deals with very different holdback percentages. A 1.35 factor with a 15% daily holdback and a 1.35 factor with a 25% holdback look the same on the term sheet — but the higher holdback compresses your repayment term, raises your effective APR, and leaves you with less daily cash to run the business. Always ask for projected repayment term, not just the factor rate.
Ask every funder for three numbers: the factor rate, the holdback percentage, and the estimated repayment term in months. With those three, you can calculate a real APR in under two minutes.
