A merchant cash advance does not have an interest rate — it has a factor rate, and the two answer different questions. The factor rate (typically 1.15–1.50) sets one fixed total you will repay no matter what. The "rate" you should actually worry about is what that total costs annually once the term is factored in, which is where MCA pricing hides its real weight.
What a factor rate actually charges you
Multiply the advance by the factor rate and that is the whole deal. The cost is flat and unconditional:
| Factor rate | Cost per $10,000 | Cost as % of advance | Cents per dollar |
|---|---|---|---|
| 1.15 | $1,500 | 15% | 115¢ |
| 1.25 | $2,500 | 25% | 125¢ |
| 1.30 | $3,000 | 30% | 130¢ |
| 1.40 | $4,000 | 40% | 140¢ |
| 1.50 | $5,000 | 50% | 150¢ |
Each 0.05 on the factor adds $500 per $10,000. Convert any quote yourself with the factor rate calculator — including backwards, from a quoted total payback to the implied factor.
The same factor rate, four different APRs
Because the flat cost is collected in frequent daily debits, the annualized cost depends almost entirely on the term. Take a 1.30 factor rate on daily debits, no fees, computed as an annualized IRR:
| Repaid over | Approximate APR |
|---|---|
| 12 months | ~73% |
| 9 months | ~107% |
| 6 months | ~198% |
| 4 months | ~410% |
Nothing about the contract changed between the rows — only how fast you are paying the same dollars back. This is why comparing MCAs on the factor number alone is misleading, and why a "cheap" 1.25 on a 4-month term can cost more annually than a 1.40 over 12 months. Run your own term against a quote in the MCA payback calculator.
What moves your rate
Funders price the advance on deposits, not credit scores, so the levers are:
- Revenue stability. Consistent monthly deposits are the single biggest factor; seasonality pushes the factor up.
- Time in business. Under a year usually means a higher factor or a smaller amount.
- Term. Shorter terms are quoted as lower factors — but the APR is higher, as the table above shows.
- Industry. Card-heavy businesses (restaurants, retail) get tighter pricing than B2B with lumpy invoices.
- Prior advances. A clean repayment history with the same funder is the most negotiable lever there is.
When the rate is a red flag
- Above 1.50. At that point you repay half again what you received; on short terms the annualized cost reaches into the hundreds of percent.
- Fees stacked on top. An origination or underwriting fee on top of the factor is cost the factor number hides — ask for total dollars, all-in.
- Debit over ~20% of sales. Price is also the daily debit relative to revenue — check any offer with the daily debit calculator before the factor number seduces you.
- No early-payoff discount in writing. Some contracts discount an early settlement; most do not. If the salesperson promises one, it goes in the contract or it does not exist.
For where the industry's prices cluster and why the spread exists, what a merchant cash advance is covers the mechanics; if quotes are stacking into a monthly total you don't like, restructuring and consolidation lenders are the next stops.
Frequently asked questions
What is a typical merchant cash advance rate?
MCAs are usually priced with a factor rate rather than an interest rate, and commonly quoted factor rates run from about 1.15 to 1.50. A 1.30 factor rate means you repay $1.30 for every $1 you receive — a flat cost of 30% no matter how quickly you repay.
What APR is a merchant cash advance?
It depends almost entirely on the term. The same 1.30 factor rate is roughly a 73% APR over 12 months of daily debits, about 107% over 9 months, and roughly 198% over 6 months. Shorter terms compress the same dollar cost into less time, so the annualized rate rises sharply.
Why is a merchant cash advance so expensive?
The funder is underwriting mostly on deposits rather than credit, advancing money in days, and taking on a business that often cannot qualify elsewhere. The flat factor rate also never shrinks with early repayment, so the effective annual cost is far higher than the factor number suggests.
Can you negotiate a merchant cash advance rate?
Sometimes. Funders with rate flexibility tend to move on term, amount, and fees; the strongest levers are months of bank statements showing stable revenue and competing written offers. Ask for the total payback in dollars and any early-payoff discount in writing before you sign.