Why Is the Estimated APR on My MCA So High?
Because an MCA's fixed cost is paid over a short period, and APR converts that cost into a yearly rate. A cost that looks moderate in dollars turns into a large annual percentage when it's repaid in months rather than years.
How does APR work on an MCA?
APR expresses the cost of financing as a yearly percentage, accounting for how fast you repay. A dollar cost paid back over one year gives one APR. The same dollar cost paid back over a few months gives a much higher one, because the money is outstanding for less time.
Why do some states require it?
Several states now require commercial financing providers to disclose an estimated APR, among other figures, so owners can compare products. California's commercial financing disclosure rules and New York's commercial finance disclosure law are two examples. The goal is comparison, not to say an advance is a loan.
Why is it only an estimate?
On a true MCA, the term depends on your sales. If sales slow and your payment is reconciled, the advance takes longer and the effective APR drops. If you pay faster, it rises. The disclosed APR uses the funder's expected term, so it's a projection.
What should you do with the number?
Use it to compare offers and products on a similar basis. A line of credit, a term loan and an advance all look different in their own terms, and APR puts them on one scale. But also look at dollars: what you receive, what you repay and what the money will earn you.
When does a high APR still make sense?
Owners take advances when speed or flexibility matters, like fulfilling a big order or covering a gap before a large receivable arrives. If the return on the money is higher than its cost, the math works even at a high APR. If the money is covering ongoing losses, no rate is low enough.
How do you compare two advances?
The advance with the lower APR isn't always cheaper in dollars. A longer advance can have a lower APR and a higher total cost. Check both.
Which Afterfirst tools help?
Our APR calculator estimates the rate for any offer and shows how the term changes it.
When does the disclosure arrive?
In states that require disclosures, you receive the estimated APR, the total cost and other figures before you sign. Read it next to the contract. If a number in the disclosure doesn't match what you were told, ask why before you sign.
How do you make the most of a high-cost advance?
Keep the advance as short and small as your purpose allows. Borrow for a clear, time limited need and pay it down with the returns from that need. That's the pattern where the cost makes sense.
How can Afterfirst help with this?
Call 877-FUND-654 and send the disclosure you received. We'll walk you through the estimated APR, the dollar cost and how it compares with other options for your business.
What else do owners ask about this?
- Is an MCA factor rate monthly or for the whole advance?
- Why do two funders price the same MCA so differently?
More short answers on this topic are on the cost FAQ, and the factor rate calculator runs the numbers for your own file.
Where do these facts come from?
Have a question we didn't answer?
Ask us on the call. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.