Merchant Cash Advance · Pricing
MCA Factor Rates Explained: How Your Payback Is Calculated
A merchant cash advance is priced with a factor rate, not an interest rate. That one number sets your total payback the day you sign. Here is how the math works, why it behaves differently from a loan rate and how to compare two offers fairly.
What Is an MCA Factor Rate?
According to RAN Funding, an MCA factor rate is a multiplier applied once to the amount you receive to set the total you repay. A $50,000 advance at a factor rate of 1.08 has a fixed payback of $54,000, so the cost is $4,000 no matter how fast the advance is repaid. Factor rates on revenue-based offers through RAN Funding start from 1.08.
How the Factor Rate Math Works
The formula is simple: amount funded × factor rate = total payback. The difference between the two is the cost of the advance.
| Amount funded | Factor rate | Total payback | Cost |
|---|---|---|---|
| $20,000 | 1.08 | $21,600 | $1,600 |
| $50,000 | 1.08 | $54,000 | $4,000 |
| $100,000 | 1.08 | $108,000 | $8,000 |
| $250,000 | 1.08 | $270,000 | $20,000 |
Run your own numbers with the factor rate calculator, which also converts the offer to an estimated APR.
Why a Factor Rate Is Not an Interest Rate
- It is charged once, up front. Interest builds on a falling balance over time. A factor rate fixes the full cost on day one.
- Paying early usually does not lower the cost. Unless the agreement includes an early payoff discount, you owe the same payback whether it takes four months or nine. Ask for the discount terms in writing.
- The term is an estimate. Many advances are repaid as a share of daily or weekly sales, so the time to repay moves with your revenue.
- The same factor rate can mean very different APRs. $4,000 on $50,000 is a far higher annualized cost over four months than over twelve. See factor rate vs APR.
What Moves Your Factor Rate
Funders price an advance by how predictable your deposits are. The same business can see very different offers depending on what its last few months of statements show.
| Factor | What helps | What hurts |
|---|---|---|
| Deposit consistency | Steady weekly deposits | Large swings or one-off deposits |
| Time in business | 12 months or more | Under six months |
| Negative days | None in the last three months | Frequent overdrafts |
| Existing positions | No open advances | Two or more open advances |
| Amount requested | In line with monthly deposits | Far above a month of revenue |
| Industry | Stable, recurring sales | Highly seasonal or volatile sales |
How to Compare Two MCA Offers
- Write down the total payback for each offer, not just the factor rate.
- Check how it is repaid: a percentage of sales, or a fixed daily or weekly debit.
- Estimate the term from your real deposits, and convert each offer to an APR so you compare like with like.
- Read the early payoff terms. A discount for paying early can change which offer is cheaper.
- Look at the disclosure. Several states require funders to disclose total cost and an estimated APR. See MCA disclosure laws by state.
When an MCA Is Not the Right Tool
An advance fits a short-term need that will pay for itself quickly, such as inventory for a busy season. For longer needs, a business line of credit or term loan usually costs less. If you already carry an advance, read revenue-based financing vs MCA and how to get out of a merchant cash advance before adding another position.
Common Questions
What is a good factor rate for a merchant cash advance?
The lower the better, and the right comparison is total payback and estimated APR, not the factor rate alone. Factor rates on revenue-based offers through RAN Funding start from 1.08 for established businesses with steady deposits.
How do you calculate MCA payback from a factor rate?
Multiply the amount funded by the factor rate. A $50,000 advance at 1.08 has a total payback of $54,000.
Does paying off an MCA early save money?
Usually not, because the cost is fixed when you sign. Some funders offer an early payoff discount, so ask for it in writing before you accept an offer.
Is a factor rate of 1.08 the same as 8% interest?
No. 8% interest is an annual rate on a falling balance. A 1.08 factor rate is a one-time cost of 8% of the amount funded, so the annualized cost is higher when the advance is repaid in under a year.
Is RAN Funding a lender?
No. RAN Funding is a business funding broker that compares offers from a network of funding partners on one application.
See What You Qualify For
One application, about five minutes, soft pull only. A funding specialist tells you up front which products fit your file, what they cost and how fast each one funds.
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