Rules
Part of Merchant Cash Advances: How the Contract Works
Merchant Cash Advances Calculator: Estimate Costs by Hand
Use this merchant cash advances calculator guide to estimate annualized cost by hand from the advance, fees, payment schedule, and estimated payback term.
| Collection case | Estimated duration | Daily debit | Dollar charge | Simple annual figure | Rate from daily cash flows |
|---|---|---|---|---|---|
| Four-month collection | 4 months | about 619 | 13,200 | about 102 percent | about 183 percent |
| Six-month collection | 6 months | about 413 | 13,200 | about 68 percent | about 123 percent |
| Eight-month collection | 8 months | about 310 | 13,200 | about 51 percent | about 92 percent |
| Twelve-month collection | 12 months | about 206 | 13,200 | about 34 percent | about 62 percent |
| Eighteen-month collection | 18 months | about 138 | 13,200 | about 23 percent | about 41 percent |
Four-month collection
At about 619 per business day, the constructed four-month case clears the 52,000 obligation. The dollar charge remains 13,200, while the simple annual figure reaches about 102 percent and the rate derived from daily cash flows is about 183 percent. Faster collection packs the unchanged charge into less time.
Six-month collection
The six-month case collects about 413 per business day until the 52,000 obligation is cleared. Its charge stays at 13,200, with a simple annual figure of about 68 percent and a daily-cash-flow rate of about 123 percent. This pace sits between the quicker four-month collection and the slower cases.
Eight-month collection
With about 310 collected each business day, the obligation clears in eight months. The simple annual figure is about 51 percent, compared with about 92 percent from daily cash flows. The difference reflects the schedule: payments start before the whole eight-month period has elapsed.
Twelve-month collection
Collecting about 206 per business day clears the same obligation over twelve months. The simple annual figure is about 34 percent, whereas the daily-cash-flow result is about 62 percent. A longer collection period spreads the unchanged 13,200 dollar charge over more time than the quicker cases.
Eighteen-month collection
At about 138 collected per business day, the 52,000 obligation takes eighteen months to clear, while the charge remains 13,200.
The simple annual figure is about 23 percent and the cash-flow result about 41 percent. The four-month result is more than four times the eighteen-month result, despite the same total and factor.
What stays fixed across the cases
Each row is a constructed case rather than a quote, market average, or live calculator result. All assume 38,800 in net funding and 52,000 to repay, producing a 13,200 dollar charge; only estimated collection time changes. The same obligation therefore gives different annualized rates under different collection schedules.
Start with the amount received
Use the advance amount, factor, and collection method to work out the obligation and charge: multiply the amount by the factor, then subtract the advance amount from the obligation. For an invented advance example of 40,000 at 1.30, the obligation is 52,000 and the charge is 12,000.
Advance math: three numbers
- 40,000amount advanced
- 1.30factor
- 52,000obligation
- 12,000dollar cost
Fees deducted before funding reduce the money received. Here, net funding is 38,800 while the obligation remains 52,000, making the cost relative to funds received 13,200. For any unclear fee, check whether it comes out before funding or is charged during the term.
Estimate duration from the collection method
An agreement may state a daily debit or a percentage of card sales instead of a repayment term. Estimate duration from its written terms and realistic sales figures.
A fixed dollar total cannot be converted into an annual cost until you have an estimate of when collection is expected to finish.
Payback period estimates
- Fixed debit168 business days, about 8 months
- 12% holdback217 business days, just over 10 months
- Sales fall to 1,400310 days, near 15 months
Fixed daily debit
Divide the obligation by the daily payment, then convert business days to months using business days per month. With 52,000 owed and about 310 collected each day, repayment takes roughly 168 business days. At 21 business days per month, that pace produces an eight-month collection period.
Percentage holdback
Divide the obligation by the amount diverted each day. At daily card sales of 2,000 and a 12 percent holdback, 240 is diverted daily. Collecting 52,000 at that pace takes about 217 business days, a little more than ten months.
If daily sales fall to 1,400, the 12 percent share becomes 168 per day, extending collection of the same 52,000 to about 310 days, close to 15 months. The dollar charge does not change, but spreading it over more time lowers annual cost. In rate terms, slower collection is cheaper.
Read annual results as timing calculations
The simple annual figure and the daily-cash-flow rate apply different timing assumptions to the same dollar charge. The simple method treats net funds as outstanding for the whole term; the cash-flow method counts each payment on its actual day. Frequent collection can therefore make the difference between annualized rates material.
For the simple figure, divide the 13,200 dollar charge by the 38,800 received, then divide by the term in years. In the eight-month case, 13,200 divided by 38,800 is about 0.34; dividing that by two-thirds of a year gives roughly 51 percent.
That method treats all 38,800 as outstanding throughout the eight months. Repayment starts on the first business day, and by halfway through the term half has been returned. The amount held is therefore roughly half the advance on average, rather than the full balance for the entire period.
A loan-style annual percentage rate based on actual daily cash flows is near twice the simple result in this example, about 92 percent nominal. It reflects payment timing, making it suitable for comparison with a term-loan quote, rather than comparing a factor directly with an interest rate.
Recalculate from the written terms
Use the agreement rather than assumed offer terms. Record the advance, factor, fees deducted before funding, and collection terms; then calculate net funding, the dollar charge, repayment duration, and annual cost in sequence. This separates the amount promised from the money received and the timing of repayment.
- Record the amount advanced, factor, and every fee deducted before funding. Subtract those fees to find net received.
- Multiply the amount by the factor to find the obligation. Add any fee charged during the term, then subtract net received to find the dollar charge.
- Estimate the term from the daily debit, or apply the holdback to real daily card sales in an ordinary month and in your worst recent month.
- Divide the dollar charge by net received, then divide by the term in years to find the simple rate.
- For the cash-flow rate, build one row per business-day period: enter net funding as a negative amount on day zero, then each collection as a positive amount for that period. For the eight-month illustration, use 38,800 received and about 310 collected each business day until total collections reach 52,000; make the last payment equal the remaining obligation. Apply the spreadsheet's IRR function to the daily cash-flow range, then multiply its daily result by the number of business days in a year.
- Compare that rate with the annualized cost of the cheapest product you could actually obtain, calculated on the same basis.
For a term-loan calculation, use the term-loan calculator. For revolving credit, where cost depends on how long a balance stays drawn, use the lines-of-credit calculator. Comparing products on an equivalent annualized basis is more useful than putting a factor beside a stated interest rate.
Use market benchmarks only as a reference
The Federal Reserve's H.15 release publishes selected interest rates. They are not offers to you, and lenders need not approach them; treat the figures as a reference point, not a rate you can obtain.
If your calculated rate is many multiples above that benchmark, inspect the gap before signing. The comparison is a point of reference, not proof that another product is available. Check whether you could obtain an alternative and whether its costs have been worked out on the same basis.
The signed agreement provides the factors, fees, and collection terms. Merchant Cash Advances explains the agreement and clauses affecting what happens when sales fall; merchant cash advances rules points to clauses to check. For neutral small-business financing background, the SBA business guide has nothing for sale.
What the calculations can and cannot show
These calculations use invented inputs, not an offer, estimate, or average, and actual offers vary widely. The table isolates how collection speed affects the annualized result. Its arithmetic is useful for a decision only after you replace the assumptions with figures and payment terms from an agreement.
