Simple Interest vs. APR: Definitions & Real Examples

What Is Simple Interest?

Simple interest is the total cost of the MCA expressed as a percentage of the amount funded. It does not consider the time it takes to repay the advance.

Formula: (Payback – Funded Amount) ÷ Funded Amount

Example:
Funded: $10,000
Payback: $13,000
Simple Interest = ($13,000 – $10,000) ÷ $10,000 = 30%

Also consider closing costs (e.g., origination fees or underwriting charges). These upfront deductions reduce the net amount received but don’t reduce your repayment. So, if $500 in fees is withheld from a $10,000 advance, your net received is $9,500, yet you’re still repaying $13,000—raising your effective cost.  

What Is APR?

APR (Annual Percentage Rate) takes into account the time it takes to repay. It shows the effective annualized cost of the MCA.

A common mistake is to use 30 calendar days per month in MCA APR calculations. However, MCA payments are typically made only on business days—and to be conservative, it’s smart to use 20 business days per month to reflect bank holidays and operating conditions.

For a deeper dive into how APR works across financial products, check out this APR guide by Investopedia.

Correct APR Calculation Example (Daily Payments):

• Funded: $10,000

• Payback: $13,000

• Daily Payment: $81.25

• Number of Payments: 160 business days

• Term = 160 ÷ 20 = 8 months

• APR ≈ (0.30 ÷ 8) × 12 = 45.0% APR

Correct APR Calculation Example (Weekly Payments):

• Funded: $10,000

• Payback: $13,000

• Weekly Payment: $406.25

• Number of Payments: 32 weeks

• Term = 32 ÷ 4 = 8 months

• APR ≈ (0.30 ÷ 8) × 12 = 45.0% APR

APR vs. Simple Interest: Daily vs. Weekly Comparison

Key Insight

Both options have the same simple interest. But the APR shifts slightly based on how you calculate repayment time. Using 20 business days and 4 weeks per month gives a more accurate, conservative estimate.

Cost Increases by Factor Rate (6-Month Term)

📎 Key Insight

Even small changes in factor rate have a big impact on cost—especially over shorter terms.

Curious how fixed fees compare to compound interest? This guide from the SBA explains common loan structures and costs.

Why Factor Rates Alone Can Mislead You

Factor rates (e.g., 1.30) tell you how much you’ll repay, but not how fast. That missing context can make an offer look affordable when it’s actually expensive.

Example: $10,000 × 1.30 = $13,000

If you repay that over 6 months with daily payments vs. 12 months weekly, the cost and impact on cash flow are drastically different.

Cash Advance – Calculator Terms

Here’s a breakdown of the key inputs used in most cash advance calculators and how each impacts your MCA costs:

• Amount Seeking: The amount you are seeking or have received from the MCA lender. This is expressed as a dollar amount.

• Factor Rate: The multiplier used to determine your estimated total payback amount. It’s a fixed fee, not compound interest. Input the factor rate your lender quoted.

• Term: The duration, in months, over which you will repay the advance. Most cash advances range between 1–18 months.

• Estimated Daily Payment: Your approximate daily payment, based on your loan amount, factor rate, and term.

• Estimated Weekly Payment: Your approximate weekly payment if your repayment frequency is weekly instead of daily.

• Estimated Total Payback: The total repayment obligation. This includes your original advance plus the factor fee, which functions like fixed interest.

How to Calculate the Cost of Your Cash Advance

Using a Merchant Cash Advance Calculator is easy and gives you quick insight into your total cost.

➤ Input Your Details

• Enter the amount you’re seeking

• Add the factor rate and the term in months

• Select whether your payments will be daily or weekly

The calculator will auto-generate your estimated daily and weekly payments based on these details.

➤ Calculate Your Payments

• View your estimated daily or weekly repayment

• Your repayment frequency will depend on what your business qualifies for—some lenders may offer weekly payment flexibility

➤ Find Your Total Payback

• The calculator shows your total remittance amount

• This is the full amount you’ll repay: the funded amount + the fixed fee from your factor rate

• This becomes your MCA loan balance. As you make payments, the balance will decrease accordingly

Use a Merchant Cash Advance Calculator

Instead of doing the math manually, plug your numbers into the Merchant Cash Advance Calculator. It calculates:

• Payback amount

• Simple interest

• APR (based on 20 business days/month and 4 weeks/month)

• Number of payments

It’s the easiest way to make sure you’re comparing real apples to apples. A great MCA calculator can highlight repayment term impacts and prepayment opportunities in seconds.

Key Factors That Impact MCA Cost

• Term Length: Shorter terms = higher APRs

• Repayment Frequency: Daily costs more than weekly

• Credit Score: Better credit usually = better offers

• Cash Flow: Strong, consistent deposits can lower factor rates

• Industry Risk: Some sectors are flagged high-risk and priced higher

💡 Pro Tip:

Many funders offer a prepayment discount if you pay the full balance early. This can dramatically reduce your effective cost—especially on shorter terms. Always ask if your offer includes one.

How to Reduce MCA Cost

✔ Ask for Weekly Payments – Weekly terms can reduce APR and ease cash flow
✔ Negotiate Your Factor Rate – Even 0.05 lower can save thousands
✔ Compare Offers Using a Calculator – Don’t rely on quoted daily payments. Use a dedicated MCA calculator to model total cost impact
✔ Work With a Broker – Brokers like AMP Advance give you access to better structured offers
✔ Explore Alternatives – Check business lines of credit and equipment loans

Final Thoughts: Know What You’re Signing

Don’t fall for the low daily number. Know your real cost:

• Calculate both simple interest and APR

• Use 20 business days/month and 4 weeks/month—not calendar assumptions

• Understand the impact of term and frequency

• Factor in any fees or closing costs to your net funding amount

• Ask about prepayment discounts that may lower your total obligationi