A merchant cash advance is priced with a factor rate, not an interest rate. In 2026, factor rates run 1.15 to 1.50. On a $50,000 advance at 1.30, you repay $65,000 — a $15,000 cost of capital. Because repayment runs over a short 3-12 month window via a daily holdback of 10-20% of card sales, the effective APR is roughly 40-100%+. The same factor rate is far more expensive over 6 months than 12. MCAs are not loans and aren't capped by usury limits, so always convert to APR before signing.
Merchant cash advances are the fastest and loosest form of business funding — and the most expensive. They are priced in a way that hides the true cost: a factor rate looks like a small number next to a bank APR, but once you account for the short repayment window, the effective annual cost is several times higher. This page exists to make that math obvious. It covers 2026 factor-rate ranges, how holdback works, and exactly how to convert a factor rate to an effective APR so you can compare an MCA to a real loan. For the product overview, see merchant cash advance; for cross-product context, see the 2026 business loan rates hub.
2026 MCA Factor Rates and What They Cost
| Factor Rate | Payback on $50k | Cost of Capital | ≈ APR (6 mo / 12 mo) |
|---|---|---|---|
| 1.15 | $57,500 | $7,500 | ≈45% / ≈25% |
| 1.25 | $62,500 | $12,500 | ≈72% / ≈40% |
| 1.30 | $65,000 | $15,000 | ≈88% / ≈48% |
| 1.40 | $70,000 | $20,000 | ≈115% / ≈62% |
| 1.50 | $75,000 | $25,000 | ≈140% / ≈75% |
APR figures are approximate and assume even repayment over the stated term. The takeaway: term length changes the true cost as much as the factor rate does. A 1.30 factor repaid in 6 months costs nearly double the same factor repaid in 12.
How Holdback Drives the Real Cost
You don't pick the repayment term on an MCA directly — the holdback (also called the retrieval rate) does. The provider takes a fixed percentage of your daily card sales, typically 10-20%, until the full payback is collected. The higher the holdback and the stronger your sales, the faster the advance is repaid — which raises the effective APR, because the same fixed fee is spread over less time. A slow sales month stretches repayment and lowers the effective APR, but providers often include a true-up or minimum payment to protect their return.
How MCA Factor Rates Are Set
Unlike bank products, MCA pricing has little to do with prime or the Federal Reserve. Providers set factor rates on internal models that weigh daily card and bank-deposit volume, consistency, time in business, industry risk, and existing advances (stacking). Because the advance is repaid from future receivables rather than collateral, and underwriting is fast and light, providers price in substantial risk — which is why even the best factor rates start around 1.15 and weaker files run to 1.50.
What Actually Drives Your Factor Rate
- Card and deposit volume — higher, steadier volume earns a lower factor.
- Consistency and negative days — frequent overdrafts push the factor up.
- Time in business — longer track record lowers the factor.
- Industry — some industries carry risk premiums or are excluded.
- Existing advances (stacking) — open positions raise the factor and can trigger declines.
Cheaper Alternatives to Consider First
An MCA makes sense only when speed is critical and nothing cheaper is available. Before signing, check whether you qualify for:
- Working capital loan — 9-30% APR vs 40-100%+ on an MCA.
- Business line of credit — revolving, pay interest only on what you draw.
- Invoice factoring — if slow receivables are the real problem.
- MCA vs working capital loan — the full side-by-side with conversion math.
Next Step
Before you take an advance, get matched with lenders to see whether a cheaper product can fund the same need. Get matched with lenders.