Convert the factor rate to dollars first
Multiply the advance by the factor rate. That number is what leaves the business. A 50,000 advance at 1.35 is 67,500 repaid, a cost of 17,500.
Because repayment scales with card volume, a strong month shortens the term without reducing the total. Faster repayment raises the effective annual cost rather than lowering it.
When it is still the right call
An advance makes sense when the alternative is lost revenue. A truck that cannot run, a walk-in full of spoiling inventory, or a payroll that has to clear tomorrow are all situations where speed is worth the premium.
It is the wrong tool for planned growth. Expansion has time on its side, and time is exactly what makes cheaper capital available.
Avoid stacking
Taking a second and third advance against the same card volume is the fastest route to a cash flow failure. Each remittance comes off the top before payroll or food cost is paid.
If a second advance feels necessary, the correct move is a refinance conversation, not another advance.
How operators get out
Once 12 to 24 months of clean operation exist, advances are frequently consolidated into a term loan or an SBA facility. The payment usually drops substantially, and the daily remittance ends.
Calculator
Merchant cash advance true cost
A factor rate is not an interest rate. Enter the advance, the factor, and how long repayment realistically takes at your card volume. The total dollars are fixed. The annualized cost is not, because paying it back faster raises it.
Typically 1.15 to 1.50. Ask for it in writing.
Daily weekday remittance is 5. Weekly is 1.
Repayment scales with card volume, so a strong month shortens the term without lowering the total. Faster repayment of the same fixed cost raises the APR.
The arithmetic
Total repaid = advance x factor. Cost = total repaid - advance. Payment = total repaid / number of payments. APR is solved from the payment stream by internal rate of return, then annualized as periodic rate x payments per year.
Sources
- 1Factor rates are not interest rates and do not disclose an APRFederal Trade Commission. FTC guidance on merchant cash advance and small business financing marketing, on cost disclosure and the difference between a factor rate and a periodic interest rate.
- 2Annual percentage rate definition, 12 CFR 1026.22Consumer Financial Protection Bureau, Regulation Z. APR is the nominal annual rate that discounts a payment stream back to the amount advanced. We solve it numerically from the payment schedule and multiply the periodic rate by the number of periods per year.
- 3California and New York require APR disclosure on commercial financingCalifornia Department of Financial Protection and Innovation. Commercial Financing Disclosure Regulations under SB 1235 require an annualized rate disclosure on sales based financing, which is why an estimated APR is the right comparison across offers.
Estimates, not offers: Amounts, terms, and funding times are estimates based on programs commonly available in food service. Actual terms vary by program, lender underwriting, time in business, revenue, and credit profile. Nothing here is an offer of credit or a guarantee of approval.