# Calculating MCA APR

How to calculate the Annual Percentage Rate on a Merchant Cash Advance

9/9/20231 min read

Calculating the Annual Percentage Rate of a Merchant Cash Advance can be challenging because MCAs are not structured like traditional loans. Instead of charging interest, MCAs buy future receivables (money you will receive in the future) for a current discounted amount. Part of the reason they do this is if they charged interest they would have to disclose the APR and it would be so high nobody would ever sign up! It would probably be illegal!

Here are the steps to accurately calculate the APR of an MCA:

Start with the amount of future revenue sold and the amount they are paying for that revenue: To calculate the APR of an MCA, you first need to determine the total repayment amount. For example, let's say you are receive an advance of $100,000 in exchange for future revenues of $150,000. That means you are paying back $150,000 in exchange for $100,000. The amount of interest (although it's not called interest with an MCA) is $50,000! That is a 50% interest rate IF IT WAS PAID BACK IN A YEAR.

Next, determine payback period. If the MCA has to be paid back in 6 months, then the ANNUAL percentage rate is equal to 100%, because the 50% rate is only for 6 months.

Accurately calculating the APR of a merchant cash advance can help business owners better understand the true cost of this type of financing and make informed decisions about whether or not it is right for their business. If you are already in an MCA and you need help, contact us today! We will work with you to understand your unique situation and consult with you on the best way forward.