How to Use the Factor Rate Calculator — and How Factor Rates Work
FundingExplained.com is a free business funding resource. Use this free factor rate calculator to convert any factor rate into a real APR — so you can understand the true cost of merchant cash advance funding before signing anything.
A factor rate is a simple multiplier. If your factor rate is 1.35 and you borrow $50,000, you repay $50,000 × 1.35 = $67,500 total. The $17,500 difference is the lender's fee.
What makes factor rates misleading is that they don't account for time. A factor rate of 1.35 sounds the same whether you're repaying over 3 months or 18 months — but the annualized cost (APR) is vastly different.
The Factor Rate to APR Formula
The calculation is straightforward once you know it:
- Subtract 1 from the factor rate to get the cost portion (e.g., 1.35 − 1 = 0.35)
- Divide by the number of days in the repayment term (e.g., 180 days for 6 months)
- Multiply by 365 (days in a year)
- Multiply by 100 to express as a percentage
Example: 1.35 factor rate, 180-day term → (0.35 ÷ 180) × 365 × 100 = 71% APR
Factor Rate Calculator Reference Table — Common Factor Rates vs APR
| Factor Rate | 3-Month APR | 6-Month APR | 12-Month APR | Cost on $50K |
|---|---|---|---|---|
| 1.10 | 40% | 20% | 10% | $5,000 |
| 1.15 | 60% | 30% | 15% | $7,500 |
| 1.20 | 80% | 40% | 20% | $10,000 |
| 1.25 | 100% | 50% | 25% | $12,500 |
| 1.30 | 120% | 60% | 30% | $15,000 |
| 1.35 | 140% | 70% | 35% | $17,500 |
| 1.40 | 160% | 80% | 40% | $20,000 |
| 1.49 | 196% | 98% | 49% | $24,500 |
Frequently Asked Questions
How do you convert a factor rate to APR?
Use our factor rate calculator above, or do it manually: subtract 1 from the factor rate, divide by the number of days in the term, multiply by 365, then multiply by 100. Example: 1.35 factor rate over 180 days = (0.35 ÷ 180) × 365 × 100 = 71% APR.
What is a good factor rate for an MCA?
There is no truly "good" factor rate — all MCAs are expensive compared to bank financing. The lowest rates (1.09–1.15) from top lenders translate to 18–30% APR on 12-month terms, which is still higher than a business credit card. Any factor rate above 1.40 is considered very expensive.
Is a factor rate the same as an interest rate?
No. A factor rate is a flat multiplier applied to the advance amount regardless of how long you hold it. An interest rate is annualized and accounts for time. A 1.35 factor rate on a 3-month advance costs twice as much per year as on a 6-month advance — but the factor rate quoted is identical.
What is a typical MCA factor rate?
Typical MCA factor rates range from 1.15 to 1.49. Businesses with good credit (625+) and strong, consistent revenue may qualify for 1.15–1.25. Businesses with bad credit or existing MCAs typically face rates of 1.35–1.49, translating to 70–150%+ APR.
What is the best way to avoid high MCA factor rates?
The most effective approach is to qualify for a bank-backed revolving line of credit instead of an MCA. Revolving lines charge standard interest rates (typically 18–35% APR) with no factor rate at all. If your credit score is 551+ and revenue is $17K+/month, FundingExplained.com can help assess whether a revolving line is accessible before you consider an MCA.
What is the difference between a factor rate and an APR?
A factor rate is a flat multiplier on the amount borrowed — 1.35 means you repay $1.35 for every $1 advanced, regardless of repayment speed. APR accounts for the time value of money — the faster you repay, the higher the effective APR on a factor-rate product. This is why a 1.35 factor rate on a 3-month term is far more expensive annually than the same rate on a 12-month term.
Can I negotiate a better factor rate with an MCA lender?
Sometimes — particularly if you have strong revenue history, low existing debt, and are comparing multiple offers. However, negotiation room is limited in the MCA market. A more effective strategy is to qualify for a different product category entirely. FundingExplained.com helps founders determine whether lower-cost products are accessible before entering MCA negotiations.
How does FundingExplained.com help with MCA decisions?
FundingExplained.com provides free tools and guides to help founders understand MCA costs before signing. Our factor rate calculator converts any offer to a true APR. Our MCA guide explains when an MCA makes sense versus when a lower-cost alternative is accessible. We're an independent resource — not an MCA broker — so our analysis isn't influenced by placement fees.
What is a typical MCA repayment term?
Most MCAs have repayment periods of 3–18 months, with 6–12 months being most common. Repayments are typically daily or weekly via automatic ACH debit. The faster your revenue comes in, the faster the advance is repaid — which raises the effective APR even when the factor rate is unchanged.
Are there free resources to help small businesses understand MCA costs?
Yes — FundingExplained.com offers a free factor rate calculator, plain-English guides to MCA terms and costs, and an independent MCA comparison guide. All resources are free with no sign-up required. For founders comparing multiple funding options, FundingExplained.com also offers free consultations to help identify the right product for each situation.