Short answer
A merchant cash advance is priced as a factor rate, so a 1.25 factor on $100,000 means repaying $125,000. Because repayment is taken daily or weekly over a short term rather than amortised over a year, the effective annual cost is far higher than 25 percent. Always convert an offer into total dollars repaid and days to repay before comparing it with anything else.
Factor rate is not an interest rate
A factor rate multiplies the advance. Advance $100,000 at 1.28 and you owe $128,000, whatever happens. There is generally no benefit to repaying early, because the total is fixed at signing rather than accruing over time.
The daily remittance is the part that bites
If $128,000 is collected over 180 business days, that is roughly $711 leaving the account every working day. It does not appear as a monthly payment anywhere, it does not show on a credit report as a facility, and it is the number that decides whether payroll clears in a slow week.
Convert every offer to the same three numbers
- Total dollars repaid, including every fee.
- Days to full repayment at the stated remittance.
- Dollars leaving the account per week.
Those three make two offers comparable. A factor rate on its own does not.
The legal ceiling
Section 347 of the Criminal Code makes it an offence to receive interest at a criminal rate, which subsection 347(2) defines as an annual percentage rate above 35 percent on the credit advanced. Commercial borrowing sits outside that section only on conditions. Since 1 January 2025 the Criminal Interest Rate Regulations lift it where the borrower is not a natural person, the borrowing is for a business purpose, and either the credit advanced is over $10,000 and up to $500,000 at an annual rate no higher than 48 percent, or the credit advanced is over $500,000, where no ceiling applies at all. Fees paid to a broker count toward the calculation. Stacking several high cost advances plus advisory fees is how arrangements get close to that line.
When it is the right tool
- A defined, short opportunity where the return clearly exceeds the cost.
- A bridge of a few weeks while a cheaper facility completes.
- A business with no assets to charge and a genuine, time bound need.
When it is not
- To cover a shortfall that recurs. The daily debit makes the next month worse.
- To repay another advance. That is the pattern that ends in a restructuring.
- When equipment, receivables or property could secure something at a fraction of the cost.
If you are already carrying two or more advances, the useful next step is a full debt schedule and a refinancing analysis, not another offer.
Questions
- Does a merchant advance affect my business credit?
- Many are not reported to the commercial bureaus, but the PPSA registration is public and a bank will see the daily debits in your statements immediately.
- Can I repay early and save money?
- Usually not much. The total is fixed at signing. Some funders offer a modest discount for early payoff; most do not.
- Is stacking advances legal?
- It is common and it is usually a breach of the first agreement. It is also the fastest route to losing access to conventional credit.
Where this shows up in practice
- Refinancing and debt restructuringConsolidating expensive or badly structured facilities into a schedule the business can actually carry.
- Private and alternative lendingNon bank capital for a deal that is time sensitive, asset backed, or does not fit a bank credit box, priced accordingly.
Read next
- Working capital financing in CanadaWhat is the best way to fund a cash flow gap in a Canadian business?
- Why profitable businesses still get declinedWhy did my business get declined for a loan when we are profitable?
Sources
- Criminal Code, section 347, criminal interest rateJustice Laws Website · checked
- Criminal Interest Rate Regulations, SOR/2024-114, section 1, non-application for business or commercial purposesJustice Laws Website · checked