The Annualized Cost of a Daily-Pay MCA: 12 Worked Examples

If the cash advance is paid daily, the cash advance company will effectively hide how much they are charging for the cash advance. A simple yearly percent can be calculated and is likely to be a smaller number than what the cash advance really costs. An advance at a factor of 1.20 to 1.50 that is paid back within three to 12 months can carry a yearly cost of roughly 38% to 346%. The speed of repayment matters as much as the factor.

The Sale of Your Future Receivables

A merchant cash advance is not a loan, but rather the sale of your future receivables. The funder is buying a fixed dollar amount of your business’s future revenue, and gets paid by a percentage of daily sales until the total amount is delivered. An interest rate is not quoted, but a factor rate is used to compute the cost of capital.

The first number to know about your merchant cash advance is the advance amount, which is the cash you will receive. Second is the factor rate, which is the multiplier used to calculate the amount you will pay. A factor rate of 1.20 means you will owe $1.20 for every $1 of the advance amount. Third is the holdback, which is the percentage of your daily revenue that will be taken to pay the advance. Fourth is the average daily deposits, which is the historical or expected volume of revenue the funder uses to calculate the approximate repayment term.

Let us say you received a $100,000 advance and were charged a factor rate of 1.32, so you owe a total of $132,000. If your daily revenue is $10,000 with a 12% holdback, the funder will take $1,200 a day. At 1.32, it will take 110 days to repay the advance.

APR Estimate

As a rough estimate, the yearly cost can be considered as the fee spread over the payback period in years. For this example, that works out to 32% in 110 days, or an annualized cost of roughly 73%. This acts as if you held the entire advance for the entire repayment period, and will typically understate the actual cost.

A truer APR estimate follows the same formula as a loan APR, applied to the payment schedule of the contract. An APR can be estimated by starting from the payment stream, where 110 days of paying $1,200 on a $100,000 advance is a daily rate of about 0.53%. That rate, times 252 days, gives a yearly rate of about 133%. The real APR is far higher than the simple rate, because it accounts for the balance being paid down from day one, which means you won’t have the full advance, just about half on average.

Consider an advance of $100,000, paid back over 63, 126, or 252 business days (roughly 3, 6, or 12 months). Three cash advances using a factor of 1.20 are all for an advance amount of $100,000, where you owe $120,000. Over three months, this carries a yearly simple rate of about 80%, with an APR of approximately 149%. Over six months the simple rate is about 40%, and the APR about 75%. Over 12 months, the simple rate is around 20%, while the APR works out to roughly 38%.

On the same $100,000 advance, let us say you are charged a factor of 1.30. You now owe $130,000, and the same 3 month, 6 month, and 12 month terms carry yearly rates of about 120%, 60%, and 30% on simple terms. The APR calculations for these terms work out to roughly 217%, 109%, and 55%. At a factor of 1.40 on the same $100,000 example, the amount owed is $140,000. In three months it carries a 160% simple rate and a 283% APR. Six months it is 80% on simple and about 142% APR, and 12 months has a simple rate of 40% and an APR of around 71%.

Finally, let us consider a $100,000 advance at a factor of 1.50, where you owe $150,000. Over three months this carries about a 200% simple rate and a whopping 346% APR. Six months brings the rates to 100% simple and 174% APR, and a year lowers them to 50% simple and 87% APR. The pattern repeats, where halving the payback period roughly doubles the APR. The cash advance has unusual pricing, and a 1.50 factor over 12 months carries a lower APR than a 1.20 factor in three months.

If your APR estimate is lower than 60%, that is excellent for merchant cash advances, where 60-120% is the better half of the market.

This model does not cover fees which accompany the contract. Many merchant cash advance contracts add an origination fee (2 to 5% is typical), an underwriting fee of $395 to $995, and a flat $25 to $50 ACH fee to pull each payment. In total, these fees can add another 4 to 8% to the effective cost. The cost estimates here will not exactly match the actual costs, because holdbacks can vary with daily or seasonal volume.

Most merchant cash advances have a fixed percentage of daily revenue. If sales rise, you pay more, and if sales fall, you pay less. Some take a fixed daily payment, the same amount every business day. The cost math is the same, but slow sales periods can push you toward default.

Estimated Annual Interest Rates in the Triple Digits

These sorts of numbers are not exaggeration. The Federal Trade Commission says that merchant cash advances can have estimated annual interest rates in the triple digits. In 2025, New York state’s Attorney General accused an operator called Yellowstone Capital of making short-term loans to businesses with interest rates up to 820% a year. The office said it took fixed daily amounts from the bank accounts of the businesses it funded, despite promising flexible payments. One Manhattan bakery ended up paying over $2,000 a day.

Some states are now making providers disclose an estimated APR. California began requiring an estimated APR on sales-based financing on December 9, 2022. New York requires compliance beginning around August 1, 2023. Its APR must include all finance charges.

So, how do you compare a cash advance to a loan, SBA loan, line of credit, or similar credit instrument? Use the actual annual cost for the cash advance, calculated from the contract terms, not the factor rate or factor number. Do not treat the APR rate and factor as the same thing; they are not even approximately interchangeable, and can be vastly different.