Why “What’s the APR?” Is a Completely Reasonable Question
A merchant asking for an APR is not being difficult. Every other financing product they have ever encountered, a credit card, a bank loan, a mortgage, quotes an annualized rate as the standard way to compare cost. Arriving at an MCA offer and hearing a factor rate instead, with no annualized number attached, is a genuinely unfamiliar experience, and treating the question as an objection to be deflected rather than a fair comparison request starts the conversation on the wrong foot.
The better starting point is validating the question directly: the merchant is right that they can’t compare a factor rate to a loan APR without more context, and that context is exactly what the rest of this conversation is for.
What a Factor Rate Is
A factor rate is a fixed decimal multiplier, commonly cited in the 1.1 to 1.5 range, applied once to the amount funded to calculate the total payback. A $50,000 advance at a 1.35 factor rate means a total payback of $67,500, calculated a single time at funding, not accruing daily or monthly the way loan interest does. That single-application mechanic is the core structural difference: a factor rate is not a rate charged over time, it is a fixed multiplier applied once.
That mechanic is also why a shorter payback term does not lower the total cost the way early loan payoff typically would; the total is fixed at funding, a distinction worth stating plainly rather than letting a merchant assume MCA math works the same way loan math does.
Why the Structural Difference Runs Deeper Than Price
Per Swish Funding’s explanation of MCA payoff mechanics, an MCA is structured as a purchase of a business’s future receivables rather than a loan, which is the structural reason a factor rate is not legally or mathematically an interest rate and cannot be substituted for an APR figure. That is not a marketing distinction invented to avoid disclosure; it is the actual legal basis for how the product is built, the same characterization that determines whether usury law even applies to the transaction at all.
Explaining that distinction honestly, rather than treating it as a technicality to skip past, is what separates a broker a merchant trusts from one who dodges the question entirely.
How SB 362 Turns This From Good Practice Into a Legal Requirement
Per Cloudsquare’s legal analysis of the law, California’s SB 362, effective since January 1, 2026 for commercial financing offers of $500,000 or less to a business principally directed or managed from California, prohibits describing a fixed fee as “simple interest” and restricts fee or factor rate language that diverges significantly from the true APR when either usage could reasonably mislead a reader. Once a specific offer is made, the law requires any communication stating pricing for that offer to disclose the APR at the same time.
For a broker working a California-qualifying deal, that means the honest explanation this guide is building toward has stopped being optional good practice; the law now requires it the moment a specific offer is on the table.
A Script for Answering the APR Question Directly
A workable answer holds three pieces together in order: acknowledge that a factor rate isn’t an APR and explain why (a fixed, one-time multiplier on a purchase of receivables, not interest accruing on a loan), walk through the actual dollar math on the specific offer (funded amount, factor rate, total payback), and, where SB 362 or another state’s disclosure law requires it, state the APR-equivalent figure the law obligates the broker to disclose once a specific offer is in front of the merchant.
What that script deliberately avoids is answering the question with a single number stripped of context, quoting an APR-equivalent figure alone without explaining the different mechanic behind it risks recreating the exact “simple interest” framing SB 362 was written to stop, even when the number itself is accurate.
What Happens When a Broker Dodges the Question Instead
This is reasoning, not a cited statistic. A merchant who asks a direct question and gets a vague non-answer, “don’t worry about that, just look at the payback amount,” tends to walk away more suspicious than they arrived, not less, since the dodge itself reads as confirmation that there is something worth hiding. A direct, honest answer, even one that concedes the product is genuinely more expensive than a bank loan would be if the merchant qualified for one, tends to land better than a deflection that never resolves the question.
A merchant who leaves the call still not knowing the answer to the one question they asked out loud has a real reason to shop the deal to a competitor who will simply answer it.
What this means for you
- A factor rate is a fixed, one-time decimal multiplier, commonly 1.1 to 1.5, applied to the funded amount; it is not an interest rate because an MCA is structured as a purchase of receivables, not a loan.
- California’s SB 362, effective since January 1, 2026, requires an APR disclosure alongside any pricing communication once a specific offer is made on a qualifying deal, and restricts calling non-annualized pricing “simple interest.”
- A workable answer to a merchant’s APR question explains the factor rate mechanic, walks through the actual payback math, and states any legally required APR-equivalent figure, rather than deflecting the question entirely.
Sources
The external data in this guide draws on the sources below. Figures described in the text as estimates or industry triangulations are directional and are not attributed to a single dataset.
- Swish Funding, Can You Pay Off a Merchant Advance Early?
- Cloudsquare, California SB 362: New APR Disclosure Requirements for Brokers and Lenders