Why an MCA has no interest rate, and why you still need an APR
A merchant cash advance is a purchase of future receivables, so there is no interest rate. What people search for as "MCA rates" is the factor rate, which typically runs from 1.1 to 1.5 [1]. It sets a fixed dollar cost that does not change with time.
An APR measures cost per year, which is the only way to put an MCA beside a loan or line of credit. California's disclosure rule defines it as a yearly rate that relates the amount and timing of value you receive to the amount and timing of what you pay back [4]. Converted that way, NerdWallet puts MCAs at roughly 40% to 350% [2].
The method in six steps
- Payback = advance x factor rate.
- Cash received = advance minus every fee taken out at funding.
- Count the payments: business days or weeks until the payback is delivered.
- Payment = payback / number of payments.
- Find the rate per period that makes all the payments worth exactly the cash received. This is the same actuarial idea the federal Truth in Lending rules use for loans [3].
- Estimated APR = rate per period x periods in a year.
Step 5 in a spreadsheet
In Excel or Google Sheets, type =RATE(number of payments, -payment, cash received). Then multiply the result by the periods in a year: 252 for business-day debits on this site, 52 for weekly.
Example: =RATE(168,-232.14,29100)*252 returns about 0.92, or 92%.
Our MCA true-cost calculator and the box above do steps 1 to 6 for you. The method is worth knowing so you can check any number someone hands you.
Worked examples: daily, weekly and a true split
Example 1: daily debits
Advance $30,000, factor rate 1.30, $900 fee taken out, paid over 8 months of business days.
Payback: $30,000 x 1.30 = $39,000. Cash received: $29,100. Cost: $9,900.
Payments: 168 business days. Each debit: $39,000 / 168 = $232.14.
Rate per business day: about 0.366%. Estimated APR: about 0.366% x 252 = about 92%.
Example 2: the same deal, weekly
Same $39,000 payback, now 35 weekly payments of $1,114.29.
Estimated APR: about 90%. Weekly is slightly lower because each dollar of payback leaves your account a little later on average.
Example 3: a true 10% split of card sales
With a split there is no fixed count of payments, so you estimate the pace from your sales. NerdWallet's guide works a 10% holdback the same way [1].
At $60,000 a month in card sales, 10% is $6,000 a month, so the $39,000 payback takes about 6.5 months: about 114% estimated APR.
At $45,000 a month, it takes about 8.7 months: about 85%. The dollar cost is $9,900 either way. Slower sales lower the APR but stretch the debits.
Factor rate to estimated APR, at a glance
| Factor rate | Paid back in 6 months | 9 months | 12 months |
|---|---|---|---|
| 1.15 | About 57% | About 38% | About 28% |
| 1.25 | About 92% | About 62% | About 46% |
| 1.35 | About 126% | About 84% | About 63% |
| 1.45 | About 158% | About 106% | About 79% |
Read across a row and the pattern is clear: the faster you pay, the higher the APR, even though the dollar cost never changes. Any fee taken out of the advance pushes every number in the table up.
Three common mistakes that make an MCA look cheaper
- Reading the factor rate as a percent. 1.30 is not 30% a year. In Example 1 it is about 92%.
- Dividing the cost by the time. $9,900 / $29,100 is 34%, and over two-thirds of a year that is about 51%. That shortcut understates the true figure by almost half, because you start paying the balance down on day one and never have the full amount for the whole term.
- Leaving out fees. A fee taken out at funding lowers the cash you receive, not the payback, so it raises the APR.
| Method | Result | Comment |
|---|---|---|
| Cost / cash received / years | About 51% | Understates; ignores that the balance falls daily |
| Rate per business day x 252 (this site) | About 92% | Matches how the payments actually flow |
| Rate per calendar day x 365, weekends counted (Truth in Lending daily unit-period) [3] | About 96% | Slightly higher, because weekends add days between some debits |
The last two rows differ by a few points because of how weekends are counted. The federal method for loans uses 365 periods a year when the unit-period is a day [3]. Either way, the answer lands near 92% to 96%, nowhere near 30% or 51%.
How to check the APR on an offer you were handed
If an offer or disclosure already shows an estimated APR, you can test it in five minutes with the same six steps. Pull these numbers off the page first.
| On the offer | Use it as | Watch for |
|---|---|---|
| Funded amount | The advance | A larger "approved" figure that is not what you get |
| Disbursement amount | Cash received | Fees taken out, and any old balance paid off from it |
| Total repayment | The payback | Should equal advance x factor rate |
| Payment and frequency | Payment and periods per year | Daily vs weekly changes the answer |
| Estimated number of payments or term | Number of payments | Based on what sales projection? |
If your result is within a few points of the disclosed APR, the difference is likely rounding or how weekends were counted. If yours is far higher, ask the provider which sales projection and payment count it used. One cause to check for is an old balance from a renewal being paid out of the new advance: that money never reaches you, so it lowers your cash received and raises the true APR.
Renewals hide cost in the cash received line
On a renewal, the new advance may pay off what is left on the old one. If a $30,000 renewal sends $12,000 to clear the old balance, you receive $18,000 minus fees, but the new payback is still figured on $30,000. Run the APR on the cash that actually reaches your account.
How New York and California require the estimated APR to be figured
Where a disclosure law applies, the provider has to do this math for you, and the rules spell out how. California requires the APR to be figured by either the actuarial method or the United States Rule method from the federal Truth in Lending rules [4]. Both states make providers account for minimum payment clauses, changes to the split over time, and reasonably expected true-ups when estimating payments [8][9].
| Method | How sales are projected | The check on it |
|---|---|---|
| Historical | Your average monthly sales over a fixed look-back of 4 to 12 months [5] | The provider must use the same look-back period for every offer of that kind |
| Opt-in | The provider's internal sales estimate [6] | A yearly audit comparing disclosed and actual APRs; if the 3-audit average gap tops 15%, the method is off limits for 24 months [6] |
New Jersey has no such rule yet, so a New Jersey offer may arrive with no APR at all. That is when the six steps above earn their keep. This is general information, not legal advice, as of Oct 20, 2026.