MCA factor rate to APR converter

What this calculates

This converter takes a merchant cash advance factor rate and an expected repayment period, and outputs an approximate effective APR. The number lets you compare the true annualised cost of an MCA against a term loan (typically 6.9% to 26.9% APR), an asset finance facility (5% to 15% APR equivalent) or a commercial credit line, all of which are quoted differently.

It does not replace a formal cost-of-credit calculation; commercial finance is exempt from APR disclosure rules. It does give you a defensible apples-to-apples sense check.

The maths in plain English

Three pieces of information are needed:

• Factor rate, e.g. 1.30. UK panel range is 1.10 to 1.50.
• Funded amount, e.g. £50,000.
• Expected repayment period in months, e.g. 12.

Step 1: total repayment equals factor multiplied by funded amount. £50,000 x 1.30 = £65,000.

Step 2: total cost equals total repayment minus funded amount. £65,000 minus £50,000 = £15,000.

Step 3: cost ratio equals total cost divided by funded amount. £15,000 / £50,000 = 0.30.

Step 4: average outstanding life. For a flat-amortising MCA paid down through daily card holdbacks, the average outstanding balance is roughly half the term. A 12-month MCA has an average life of about 6 months, or 180 days.

Step 5: APR equals cost ratio multiplied by 365, divided by average life in days, multiplied by 100. 0.30 x 365 / 180 x 100 = approximately 60.8% APR.

This is the standard "actuarial flat-to-APR approximation". A precise APR would discount each daily payment to present value, but the result for typical MCA profiles lands within 2 to 3 percentage points of the approximation.

Worked example 1: factor 1.20 across 6, 9 and 12 months

Funded amount £50,000, factor 1.20, total repayment £60,000, total cost £10,000, cost ratio 0.20.

The same factor produces wildly different APRs depending on how fast you pay it back. A short repayment window doubles the effective rate. Lenders quote a single factor; the holdback percentage and your card flow set the actual term.

Worked example 2: factor 1.30 across 6, 9 and 12 months

Funded amount £50,000, factor 1.30, total repayment £65,000, total cost £15,000, cost ratio 0.30. This is the central case for a typical UK SMB MCA panel quote.

The 12-month figure is the one most commonly quoted in industry summaries. Sub-12-month payback (very common for hospitality and e-commerce with high card volume) puts the same product into triple digits.

Worked example 3: factor 1.40 across 6, 9 and 12 months

Funded amount £50,000, factor 1.40, total repayment £70,000, total cost £20,000, cost ratio 0.40. This factor band is typical for higher-risk profiles: thin trading time, recent CCJs, single-channel sector concentration, or a top-up advance over an existing MCA.

At factor 1.40 over a fast turn, you are looking at an effective annualised cost above 160%. That can still be the right product if it unblocks a contract that pays back inside the same window, but it is not a "loan-equivalent" product and should not be compared to one on monthly cost alone.

### Worked examples: factor rate to approximate APR on a £50,000 advance

| Factor rate | Total repayment | Total cost | APR at 6 months | APR at 9 months | APR at 12 months |
| --- | --- | --- | --- | --- | --- |
| 1.20 | £60,000 | £10,000 | 81.1% | 54.1% | 40.6% |
| 1.30 | £65,000 | £15,000 | 121.7% | 81.1% | 60.8% |
| 1.40 | £70,000 | £20,000 | 162.2% | 108.1% | 81.1% |

Source: FundBiz MCA factor rate to APR worked examples

APR = (factor minus 1) x 365 / average outstanding life in days x 100, where average life is roughly half the repayment period for a flat-amortising MCA (6 months = 90 days, 9 months = 135 days, 12 months = 180 days). Actuarial flat-to-APR approximation; a precise present-value APR lands within 2 to 3 percentage points for typical MCA profiles.

When this number matters

The APR conversion matters when:

• You are choosing between an MCA and a term loan or asset finance facility for the same use of funds.
• You want to budget the true monthly cost into a 12-month forecast.
• A lender or broker has quoted only the factor and you want to sanity-check the deal.
• You are renewing or topping up an MCA and need to compare cumulative cost across rolling advances.

It matters less when the use of funds is a one-off, fast-turn opportunity (a stock buy, a bridging gap before a confirmed receivable) where the question is "will this trade pay it back?" rather than "what is the annualised cost?"

Edge cases

Daily holdback faster than expected. If card receipts come in stronger than the lender's underwriting assumption, the MCA pays off faster, which raises the effective APR (you pay the same total cost over fewer days). Strong trading paradoxically makes the MCA more expensive on an annualised basis.

Holdback slower than expected. A weak season slows repayment, which lowers APR. The total cost in pounds does not change. Slower payback is cheaper on APR but ties up working capital longer.

Top-up MCAs. Some panel lenders refinance an existing MCA into a larger one. The APR on the new advance is calculated on the new principal but the timing reset means cumulative cost across both products is usually higher than the headline factor implies.

Fixed daily debit instead of holdback. Some products use a fixed daily £ debit rather than a percentage of card receipts. Term is then known up front, and the APR conversion is exact rather than approximate.

FAQs