A factor rate is not an interest rate, and a merchant cash advance has no fixed term. That combination makes these offers almost impossible to compare against a business loan on the face of them. Put the numbers from your offer into the calculator and it will tell you what the deal actually costs, how long it is likely to run, and the annual rate it works out at.
Factor rate to APR converter
Enter the offer exactly as the funder has quoted it. Nothing is sent anywhere and nothing is stored.
If your takings move
The cash cost of a merchant cash advance never changes. Only the speed you repay it changes, and that is what moves the annual rate. Trade harder and the same deal gets more expensive in annual terms. Trade slower and it gets cheaper, but it sits on your takings for longer.
Show the workings
The effective annual rate is the internal rate of return on the payment schedule above, compounded to a year. In plain terms: the rate a loan would have to charge on a reducing balance to cost you the same money over the same period. It is the same convention used for APR on regulated credit, which is why the number looks large on a short facility.
The nominal annualised rate is that same periodic rate multiplied out to a year without compounding. The simple cost figure is just the total cost divided by the cash received, spread over the term. All three are correct. They answer slightly different questions, and funders tend to quote whichever is smallest.
What a factor rate actually is
A factor rate is a fixed multiple applied once to the advance. A rate of 1.35 on a £25,000 advance means you repay £33,750. The £8,750 difference is the whole cost of the facility and it is set the moment you sign. It does not accrue day by day, it does not reduce as the balance comes down, and on most agreements it does not shrink if you clear the advance early.
That is why a factor rate cannot be read as an interest rate. Interest is charged on a reducing balance over a period, so the period is part of the price. A factor rate has no period in it at all. Expressed the way most people think about borrowing, 1.35 means 35p of cost for every pound advanced, and how expensive that turns out to be depends entirely on how quickly your card takings pay it off.
Why a merchant cash advance has no fixed APR
Repayment is a percentage of your card settlements rather than a fixed monthly instalment. Take more, and you repay faster. Take less, and it runs on. The funder gets the same money either way, so the term is the only variable, and the term is what turns a cash cost into an annual rate.
The practical effect catches people out. Two businesses on identical terms, £25,000 at 1.35 with a 15% holdback, can end up on wildly different annual rates purely because one turns over £40,000 a month on card and the other turns over £70,000. The busier business repays sooner and pays a much higher annual rate for the privilege. The sensitivity table in the calculator shows the swing on your own figures.
This is also the honest answer to the question of whether an advance is expensive. On a genuinely short bridge of a few weeks, an eye watering annual rate can still be a small and manageable amount of cash. Over a year, a modest looking factor rate is often dearer than a term loan. Compare the cash cost and the term together, never the factor rate on its own.
How the holdback percentage changes the cost
The holdback, sometimes called the retention rate or the split, is the share of each card settlement the funder keeps. It is usually taken every business day, occasionally weekly. A higher holdback clears the advance faster, which raises the annual rate but gets the deduction off your takings sooner. A lower holdback is gentler week to week and cheaper in annual terms, but the facility sits across your card income for longer, which matters if you might need a second facility.
Work out the daily figure before you sign it, not the monthly one. A 15% holdback on £40,000 of monthly card turnover is around £286 a business day. That is the number your bank account actually feels, and it is the number to test against your quietest trading week rather than your average one.
What the calculator does not cover
It prices the offer in front of you. It cannot tell you about the things that sit around the offer, and those are usually where the real money is:
- Early settlement. Most advances have no discount for paying up sooner. If yours does, get the discount in writing before you rely on it.
- Renewals and top ups. Refinancing an advance before it is repaid can mean paying the fixed cost twice on the part you have already cleared. Ask for the settlement figure on the existing advance and the total repayable on the new one, then compare the two against what you actually receive.
- Seasonality. A single average monthly turnover figure hides a seasonal business. Run the calculator on a quiet month as well.
- Security and guarantees. Many funders take a personal guarantee. That has nothing to do with the rate and everything to do with your risk.
- Whether an advance is the right tool. If the money is for stock, equipment or an invoice book, there is usually something cheaper.
We deliberately do not publish rates or fees anywhere on this page. Pricing moves, and a page quoting last year’s numbers is worse than no page at all. The figures are yours to enter, and the maths is shown in full so you can check it.
Questions we get asked
Is a factor rate the same as an APR?
No. A factor rate is a multiple with no time element. An APR is a rate over a year. Converting one to the other needs a repayment period, which is why this calculator asks for your card turnover and holdback rather than just the factor rate.
Is 1.2 a good factor rate?
It depends entirely on the term. A 1.2 cleared in three months is far more expensive in annual terms than a 1.35 spread over a year. Run both through the calculator on your own turnover before deciding which offer is cheaper.
Do I save money by repaying early?
Usually not. The cost is fixed at the point of signing, so clearing it faster tends to mean paying the same money over less time, which raises the effective rate. Check the agreement for an early settlement discount and do not assume one exists.
Will an advance show on my credit file?
Whether the facility itself is reported varies between funders, so ask directly. Almost all of them will credit search the business and its directors before offering, and many will want a personal guarantee.
Is a merchant cash advance regulated?
Advances taken by limited companies for business purposes sit outside consumer credit regulation. Lending to sole traders and partnerships can fall inside it in some circumstances, which is one reason a number of funders will only advance to limited companies. Check the position with the funder on any agreement you are asked to sign.
What happens if my takings fall?
The cash cost stays exactly the same and the facility simply takes longer to clear. That flexibility is the genuine advantage of an advance over a fixed instalment loan, and the calculator’s sensitivity table shows what it does to the annual rate.
What are the alternatives?
Depending on what the money is for: a business loan for a defined project, a revolving credit facility for working capital that comes and goes, invoice finance if you invoice other businesses on terms, or asset finance if it is equipment. An advance suits card taking businesses that need money quickly and cannot wait on a fuller underwriting process.
Get the offer checked before you sign it
If you have an advance on the table, or you have been offered a renewal on one you already have, we will read the paperwork and tell you what it costs against the alternatives. We are a whole of market broker, we are paid by the lender on completion, and we will say plainly if we think an advance is the wrong product for what you are doing.
Or see how we compare offers on our merchant cash advance comparison page.
This calculator is provided for illustration only and does not constitute financial advice or an offer of finance. Figures are estimates based on the assumptions you enter and the actual repayment period will depend on your trading. Bolton Business Finance Ltd is not authorised or regulated by the Financial Conduct Authority and arranges non-regulated, business purpose commercial finance only. Always read the funder’s agreement in full before signing.
Compare it against the alternatives
A merchant cash advance is rarely the only option, and the annual figure above is what makes a fair comparison possible. Our business loan calculator prices a term loan on the same basis, so you can put the two side by side.
If the advance is one of several facilities you are carrying, the business loan consolidation calculator works out the blended rate across all of them and shows whether refinancing the lot is actually cheaper. It handles the fact that settling an advance early usually saves nothing.
Where the funding need is invoices rather than card takings, try the payroll funding calculator. For everything else, see all our commercial finance calculators.