Guides

Converting a factor rate to an APR, worked all the way through

Seven steps, one worked $50,000 example, a ten second estimate, and the exact spreadsheet formula. Plus why the same factor can be 51 percent or 204 percent.

7 minute readUpdated 2026-07-29Written by the Exp Capital desk

A factor rate cannot be compared to a bank rate until you convert it, and the conversion is not hard. It needs four numbers you already have: the amount funded, the factor, the number of payments, and the calendar days those payments span. Here is the whole thing, worked out on a real deal.

The short version: a factor rate on its own tells you almost nothing about price. The term is doing half the work. The same 1.28 factor is a 51 percent APR over twelve months and a 204 percent APR over three. Anyone quoting you a factor without a term is quoting you half a price.

The conversion in four moves, before any spreadsheet is open

The seven steps, on a $50,000 advance

Our example offer: $50,000 funded, 1.28 factor, daily payments, roughly six months. This is an ordinary offer, not a bad one. Follow along with your own numbers in the same order.

01Write down the four numbers
Amount funded $50,000. Factor 1.28. Payment count 128 business days. Calendar span 179 days. If your term sheet does not state the payment count, divide the total payback by the daily debit and you have it.
02Multiply for total payback
$50,000 times 1.28 equals $64,000. This is the entire obligation and it is fixed at signing.
03Subtract for cost of capital
$64,000 minus $50,000 equals $14,000. This is the dollar cost. It is not yet a rate, and it is the number most people stop at.
04Find the payment
$64,000 divided by 128 payments equals $500.00 per business day. Around $10,850 leaves the account every month.
05Estimate in ten seconds
Divide the cost by 55 percent of the amount funded, then divide by the term in years. $14,000 divided by $27,500 is 0.509. Divided by 0.49 years gives about 104 percent.
06Get it exact in a spreadsheet
Enter =RATE(128,-500,50000). That returns 0.4005 percent, the true rate per business day. Multiply by the payments per year, which is 128 times 365 divided by 179, or 261. The answer is 104.5 percent APR.
07Add the fees and run it again
If 3 percent origination and a $395 underwriting fee come out of the wire, you received $48,105, not $50,000. Same $500 payment, smaller amount funded. The APR moves to 121.8 percent.

Headline the funder quotes: 1.28 factor
Total payback: $64,000
Cost of capital: $14,000, or 28 percent of the funded amount
Term: 128 business days, about 179 calendar days
Ten second estimate: About 104 percent
Exact APR, no fees: 104.5 percent nominal
Exact APR, with typical fees: 121.8 percent nominal

Why the ten second estimate works

The estimate rests on one fact: you never have the whole $50,000 for the whole term. You start paying it back the next business day. Run the amortization on this deal and the average balance you actually had use of is about $27,300, which is right around 55 percent of what was funded.

So you did not pay $14,000 for the use of $50,000. You paid $14,000 for the use of roughly $27,500, over about half a year. That is where the annualized number comes from, and it is why the honest APR is roughly double what the raw percentage suggests. Across every example on this page the 55 percent shortcut lands within two points of the exact answer.

The same factor, four completely different prices

Here is the point that matters most in this entire guide. Hold the factor at 1.28 and change nothing but the term. The dollar cost stays exactly $14,000 in all four cases. The price does not.

$50,000 at a 1.28 factor, four terms, identical dollar cost
Term	Daily payment	Total payback	Cost	APR
3 months	$984.62	$64,000	$14,000	204 percent
6 months	$500.00	$64,000	$14,000	104 percent
9 months	$328.21	$64,000	$14,000	69 percent
12 months	$245.21	$64,000	$14,000	51 percent

A shorter term at the same factor is a worse deal on price and a harder deal on cash flow at the same time. This is the opposite of what most owners assume, because short feels safer. It is not. If a funder offers you the same factor over a shorter term, they have quietly raised the price.

Now run it the other direction. These four offers all price out within a point or two of 100 percent APR, and their factors run from 1.13 to 1.58.

Four offers on $50,000 that all price out near 100 percent APR

If you were shown these four side by side and picked the 1.13, you would think you had picked the cheapest one by a mile. You picked a tie. This is exactly why comparing two offers requires converting both before you look at either.

Fees change the answer more than you expect

The APR is driven by what landed in your account, not what the contract says was funded. Every dollar taken off the top before the wire raises the rate on everything that remains.

The $50,000 offer, showing what actually reaches your account

On our $50,000 example, a 3 percent origination fee plus a $395 underwriting fee is $1,895. You receive $48,105. The payment does not change, the payback does not change, and the APR jumps from 104.5 percent to 121.8 percent. Seventeen points of price for a fee that took up two lines on page four.

Daily versus weekly barely moves the rate

Owners often assume a weekly payment is materially cheaper than a daily one. Run the conversion and it is not. Our same $50,000 at 1.28 over six months prices at 104.5 percent on 128 daily debits and 100.2 percent on 26 weekly debits. Four points. The money costs almost exactly the same either way, because the total payback and the term did not change.

What does change is the pressure on your account. A weekly debit of $2,461.54 hits once and lets the balance rebuild for six days. A daily debit of $500 never lets it rebuild at all, which is brutal if your deposits are lumpy and fine if they are steady. Choose the frequency on cash flow grounds, not price grounds, and read daily versus weekly payments before you decide.

Nominal APR and effective APR are not the same number

The 104.5 percent above is a nominal APR: the daily rate multiplied by the number of payments in a year. That is the convention used in commercial financing disclosures, so it is the number to use when you compare offers. If you instead compound that daily rate across a full year, the effective annual figure on this same deal is about 184 percent.

Both numbers are true. Use nominal to compare offers against each other and against a bank quote. Use effective only if you genuinely intend to keep rolling this money for a year, which is a plan worth reconsidering. See effective APR for the distinction in one paragraph.

What the APR still will not tell you

Converting to APR makes two offers comparable. It does not make them equivalent. Two things sit outside the rate and can matter more than twenty points of it.

The payment against your actual cash. A 51 percent APR that debits $245 a day may be unaffordable while a 104 percent APR at $500 a day is fine, if the money is buying inventory that turns in sixty days. Price and affordability are separate questions.
The terms with no rate attached. Cross default clauses, confession of judgment, reconciliation you cannot actually invoke, and blanket liens on everything you own. None of these show up in an APR and all of them can cost more than the money did.
What happens at the end. A deal that ends is cheap. A deal you renew at month six, rolling an unpaid balance into a new advance, is far more expensive than any APR on the first page. See total cost of capital for that arithmetic.
Whether you needed it. The cheapest capital is the receivable you collect on time. Run when not to borrow before you run the rate.

What we do with this

Exp Capital Solutions is a broker. We do not fund, price, or approve anything. What we do is put one file in front of the funding partners most likely to price it well, then hand you a one page comparison with the amount funded net of fees, the total payback, the payment, the term, and the converted APR written out for every offer. If the honest answer is that a line of credit or an SBA loan beats every advance on the table, we say that, even though it pays us less and takes longer to close.

Questions people actually ask

What is the formula to convert a factor rate to an APR?

Estimate it as cost of capital divided by 0.55 times the amount you actually received, divided by the term in years. For the exact figure, use =RATE(number of payments, minus the payment, amount received) in a spreadsheet, then multiply that periodic rate by the number of payments in a calendar year.

What APR is a 1.2 factor rate?

It depends entirely on the term. A 1.2 factor repaid daily over six months is roughly 75 percent APR. The same 1.2 over twelve months is roughly 36 percent. Over three months it is over 145 percent. A factor rate quoted without a term cannot be converted, and should not be evaluated.

Why does a shorter term make my APR higher if the cost is the same?

Because APR is a rate of speed, not a total. Paying $14,000 of cost over three months is four times faster than paying the same $14,000 over twelve, so the annualized rate is roughly four times higher. Short terms feel safer and price worse. Both things are true at once.

Should I use nominal APR or effective APR to compare offers?

Use nominal. It is the daily or weekly rate multiplied by the number of payments in a year, and it is the convention used in commercial financing disclosures, so it is the only version that compares cleanly against a bank quote or another funder's disclosure. Effective APR compounds the same rate and always reads much higher.

Do origination fees count in the APR?

Yes, and they matter a lot. Anything deducted before the wire reduces the money you actually received while leaving the payment unchanged. On a $50,000 advance, a 3 percent origination fee plus a $395 underwriting fee moves the APR from about 104 percent to about 122 percent.

Is an APR even meaningful on a merchant cash advance?

It is not a legal rate, because an advance is a purchase of receivables rather than a loan, and no interest accrues. But it is the only way to compare an advance against a term loan or a line of credit on the same scale. Treat it as a comparison tool, not a contract term.

How many payments are in a year for a daily pay advance?

Take your payment count and multiply by 365 divided by the calendar days of the term. A 128 payment deal spanning 179 days works out to 261 payments a year, which is the standard business day count. Using 365 by mistake will overstate your APR by about 40 percent.

Keep reading

What is a factor rateThe multiplier itself, and what sets yours.Comparing two offersThe worksheet for putting two different structures on one scale.Total cost of capitalEvery fee and renewal cost that never reaches the headline.Merchant cash advanceThe product these conversions are usually about.