How to Compare What Money Actually Costs
Two offers land on the same desk in the same week. One is a $150,000 advance quoted at a factor rate of 1.35. The other is a line of credit at 14 percent. The owner takes the advance, because 1.35 reads smaller than 14, and both of those stay just numbers until somebody does the arithmetic that almost nobody does in the room.
The 1.35 is not a rate. It is a multiplier. Nav, in its 2026 guide to merchant cash advances, spells out the math about as plainly as it can be spelled: a $50,000 advance at a 1.3 factor means you repay $65,000. The $15,000 is fixed the day you sign. It does not shrink if you pay early. It does not care how long you take. That last part is exactly why a factor rate cannot be compared to an interest rate, and why owners keep comparing them anyway.
Time is the missing variable
An interest rate has time built into it. A factor rate does not. That single difference is where the real cost hides.
Take the same 1.3 factor. Repaid over 6 months, industry estimates put the effective APR somewhere around 60 to 80 percent. Repaid over 3 months, because the daily debits are large and the revenue is strong, the same factor rate can imply an APR north of 120 percent. Paying it back faster does not save you money on an advance. It raises your annualized cost, because you are handing back the same fixed dollars in less time. That is the opposite of how every other loan you have ever taken behaves, and it is the part that catches people.
Estimates for merchant cash advances run from roughly 40 percent APR at the friendly end to 350 percent or more at the ugly end, depending on the factor and the term. Set that against the alternatives owners rarely price in the same moment. SBA 7(a) loans in mid-2026 ran somewhere between roughly 9.75 and 14.75 percent, tied to a prime rate sitting at 6.75. Conventional bank term loans land lower still. The gap between those and an advance is not a few points. It is often an entire order of magnitude.
Make every offer show its work
Here is the good news, and it is recent. Regulators decided the arithmetic mattered too.
California's SB 1235 has, since it took effect, required commercial financing providers to disclose an estimated APR and a total dollar cost on deals under $500,000. New York's commercial financing rule pushed similar disclosures live in 2023. Texas added its own sales-based financing disclosure law, HB 700, in 2025, and a growing list of states, Virginia, Utah, Connecticut, Florida, Georgia, Kansas, have layered on disclosure or registration requirements of their own. Not all of them force an APR figure. The 2 biggest markets do. When the states that regulate the most money decide a provider has to translate a factor rate into an annual percentage, you can assume the translation was hiding something worth seeing.
Use it. If an offer comes from a state that mandates the APR, read the APR, not the factor. If it comes from one that does not, do the conversion yourself or make the provider do it before you sign.
The 2 columns
Put every offer you receive into the same 2 columns and nothing else matters until those are filled.
Column one is total dollars out. Not the rate, not the fee, not the daily payment. The full number of dollars that will leave your business over the life of the facility, start to finish. On an advance that is the advance times the factor. On a loan it is principal plus all interest and fees over the term. One figure each.
Column two is the annualized cost. APR, or the closest honest estimate of it, so that a 3-month obligation and a 3-year one can sit next to each other and be judged on the same scale.
Once both columns are filled, the ranking is usually not close, and the cheapest money is almost never the offer that called you first. Fast money markets itself on speed because it cannot compete on price. That is not a moral judgment. It is just what shows up when you finish the arithmetic. Do the arithmetic before you need the money, not after.