Factor Rate vs APR: What an MCA Costs in Dollars
A factor locks an MCA payback in place the day you sign. An APR spreads that same dollar cost across the expected collection time, so it shifts whenever the schedule does.
Work in dollars first, then read the APR estimate as a measure of time.
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How does a factor differ from an APR?
The rule fits on one line: advance times factor equals the payback, and payback minus advance equals your cost. Advance $50,000 against a $65,000 payback and the cost comes to $15,000, and that figure is locked in the day you sign.
An APR answers a different question. It asks what that $15,000 would look like as a yearly percentage, given the number of months the provider projects for collection. The factor prices the deal. The APR describes its pace.
How does $50,000 of funding behave when sales change?
Picture a hardware store with $100,000 in monthly sales that signs for a $50,000 advance with a $65,000 payback. The funder collects 12% of sales, so about $12,000 leaves the account each month and the payback is reached in a little over five months. The cost is $15,000.
Notice what the owner should check here: whether $50,000 of new stock or equipment will earn back more than $15,000 before the payback is done. If it will, the advance can make sense whatever its APR estimate says. If it won't, a lower APR on paper can't rescue the deal. This is the habit to build: test every offer against a dollar result you can name for your own store.
| Monthly sales | Collected per month | Time to reach $65,000 | Dollar cost |
|---|---|---|---|
| $100,000 | $12,000 | about 5.5 months | $15,000 |
| $60,000 (a 40% drop) | $7,200 | about 9 months | $15,000 |
Now sales fall 40%, to $60,000 a month. Collection drops to $7,200 a month and the payback takes about nine months. The dollar cost has not moved at all; it's still $15,000. What changes is the APR estimate, which falls sharply, because the same dollars are now spread over more time. These are sample figures built to show the math.
Why does a factor read differently from an APR?
Owners often read a factor as if it were a yearly percentage. It isn't. A factor applies one time across the full sum advanced, while an APR is a yearly measure that depends on time. A pair of offers sharing one factor can display very different APR estimates if one is expected to collect in five months and the other in ten.
That is also why some states require providers to print an APR estimate on offers repaid from sales. The estimate rests on an assumed schedule, so ask what schedule was used. Nothing here is legal advice. For your own state, ask the provider which disclosures apply.
Which costs sit outside the factor?
- A fee withheld from the deposit at funding.
- A charge for each debit or bank transfer.
- A fee when a scheduled debit bounces.
- Money from a renewal deposit used to clear the prior balance.
Here is how one fee changes the picture. If $1,500 is withheld at funding, the shop receives $48,500 and still owes $65,000. Its real cost is $16,500, not $15,000, and any APR estimate should be based on the smaller sum it actually received.
How does reconciliation change the APR estimate?
Plenty of agreements fix the debit per day or per week, then offer a reconciliation on request. If sales fall, you send bank statements and the funder lowers the debit until it lines up with the percentage in the contract. Without that step, a fixed $3,000 weekly debit keeps going even when the store is quiet.
An APR worked out from the set debit stops matching what you pay once a reconciliation lowers that debit, so get the clause in writing and rerun the estimate with the adjusted amount. A clause that works in practice protects your cash in a slow month. A clause that is hard to use leaves the fixed debit in place and the schedule unchanged.
Which questions settle the cost?
- What is the payback in dollars, and what is the advance in dollars?
- How much cash will actually land in my account after fees?
- Does collection follow sales, or is the debit set?
- What schedule was used to work out the APR estimate?
- How do I request a reconciliation, and how often?
- Does finishing ahead of schedule earn any discount?
- If I renew, how much of the new deposit goes to the old balance?
Get every answer in writing. Our guide to reading an MCA offer shows where each figure tends to appear on the page.
Takeaway
A factor fixes what an advance costs in dollars; an APR tells you the pace at which that cost is collected. In the hardware store example, the owner pays $15,000 whether sales hold or fall, while the APR estimate moves with the schedule.
Compare offers on dollar cost after fees first, then run each one through our APR calculator using one shared schedule. Watch for stacking when an earlier advance is still open. When you're ready, send one application or call (877) 386-3654.
Factor and APR questions
Will settling early cut what I owe?
Only if the contract names an early payoff discount. The payback is set once, at signing, so finishing ahead of schedule frees your deposits sooner but keeps the dollar cost the same unless that clause exists.
Why do MCA APR estimates run so high?
Because the collection window is short. An APR stretches cost over twelve months, so the same $15,000 paid back in six months reads far higher than it would over a longer schedule.
Is the factor charged every month?
No. It's applied one time to the whole advance. If an offer describes it as a monthly charge, have the provider restate the whole payback as a dollar figure before you go further.
Which figure should I compare across two offers?
Start with the dollar cost counting fees, measured against the money deposited for you to spend. Then compare the APR estimates, as long as both were worked out on the same expected schedule.
How do renewals and second advances affect the math?
Yes. A renewal usually clears what is left on the earlier advance using part of the new deposit, so less cash reaches you. Taking a second advance while the first runs brings a new payback and a second daily or weekly debit.
Sources
- New York Financial Services Law Section 803 requires a sales-based financing offer to show an estimated APR. APR is the yearly cost measure used for credit products, so it's worked out from the expected term and payments (NYSenate.gov). That is why a factor rate vs APR comparison shifts when the term does.
Afterfirst is not a funder; all offers are subject to funder underwriting.
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