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Annual percentage rate APR
Also called APR, annualized percentage rate.
The cost of financing expressed as a yearly rate that accounts for fees and for how long you actually hold the money, which is the only figure that compares products with different structures.
Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.
What it means
APR converts total cost into an annualized rate by taking account of two things a factor rate ignores: fees, and the timing of repayments. Because you repay a daily or weekly product continuously, your average outstanding balance is roughly half the amount advanced, so the same dollar cost over a shorter period represents a much higher rate.
This is why a factor rate cannot be read as an interest rate. A 1.40 factor is a 40 percent total cost, but if it is repaid over six months on daily debits, the annualized cost is multiples of that. The shorter the term, the wider the gap.
Federal Truth in Lending does not apply to business-purpose credit, so there is no general federal APR disclosure duty for small-business funding. State law has been filling that gap. California and New York require an APR or annualized figure in commercial financing disclosures for covered transactions, and other states have enacted disclosure statutes that require dollar-cost and term disclosures without APR. For sales-based financing with no fixed term, the disclosed APR is an estimate built on a projected repayment period.
APR is not a perfect tool for very short financings, where it produces large numbers that feel unreal. It remains the only common denominator between a 12-month term loan, a factoring line and a 6-month advance.
Where this one catches people
Paying a factor-rate advance off early raises the APR rather than lowering it. The dollar cost is fixed at signing, so compressing it into fewer weeks increases the annualized rate. Borrowers who prepay expecting a discount get the same total cost, at a higher effective rate, unless the contract contains a written early-payoff discount.
Worked through
100,000 advanced, 130,000 repaid over 6 months of daily debits. Dollar cost is 30,000, or 30 percent of the advance. But average outstanding is roughly 50,000 over half a year, so the annualized cost lands far above 30 percent. Repay the same 130,000 in 3 months and the dollar cost is unchanged while the APR roughly doubles.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Sources and checks
Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.
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100,000 advanced against 130,000 repaid over six months of daily debits carries a 30,000 (30%) dollar cost and annualizes far above 30%, and compressing the same repayment into three months roughly doubles the APR
example130,000 - 100,000 = 30,000 = 30% of 100,000. Six months = 126 banking days at 1,031.75 a day; solving 100,000 = 1,031.75 x (1-(1+i)^-126)/i gives i = 0.4336% per day, x 252 = 109.26% nominal annual. Three months = 63 banking days at 2,063.49; i = 0.8615%, x 252 = 217.10%. 217.10 / 109.26 = 1.99, so 'roughly doubles' is correct. Average outstanding on a level-payment schedule is close to half the advance, as stated.
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Federal Truth in Lending does not apply to business-purpose credit, so there is no general federal APR disclosure duty for small-business funding
definition12 CFR 1026.3(a): 'The following transactions are not subject to this part... (a) Business, commercial, agricultural, or organizational credit,' at (a)(1) 'An extension of credit primarily for a business, commercial or agricultural purpose.'
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California requires an APR (an Estimated APR for sales-based financing and factoring) in commercial financing disclosures for covered transactions
definitionCalifornia Fin. Code s 22802 and the implementing disclosure regulations require an 'Annual Percentage Rate (APR)' line for closed-end (s 2061) and open-end (s 2062) commercial financing, and an 'Estimated Annual Percentage Rate (APR)' for factoring (ss 2063-2064) and sales-based financing (s 2065), calculated under s 3001, with the explanatory line 'APR is the cost of your financing expressed as a yearly rate.'
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New York likewise requires an APR, and an Estimated APR built on a projected repayment period for sales-based financing
definition23 NYCRR 600.3(a): 'Any provider who extends a specific offer of commercial financing to a recipient shall, at the time of extending the specific offer of commercial financing, disclose to the recipient the annual percentage rate.' 600.6(c) requires sales-based financing to disclose an 'Estimated Annual Percentage Rate (APR)' with the legend 'APR is the estimated cost of your financing expressed as a yearly rate... Since your actual income may vary from our estimate, your effective APR may also vary.'
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California's commercial financing disclosure law requires six disclosures including an annualized rate, confirming the entry's 'State law has been filling that gap'
definitionDFPI, California Financing Law: Commercial Financing Disclosures, lists the mandated disclosures as the total amount of funds provided, the total dollar cost of financing, the term or estimated term, the method, frequency and amount of payments, a description of prepayment policies, and an annualized rate.
Annual percentage rate — common questions
What does annual percentage rate mean?
The cost of financing expressed as a yearly rate that accounts for fees and for how long you actually hold the money, which is the only figure that compares products with different structures.
Where does annual percentage rate catch people out?
Paying a factor-rate advance off early raises the APR rather than lowering it. The dollar cost is fixed at signing, so compressing it into fewer weeks increases the annualized rate. Borrowers who prepay expecting a discount get the same total cost, at a higher effective rate, unless the contract contains a written early-payoff discount.
Is annual percentage rate the same as an interest rate?
Annual percentage rate is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does annual percentage rate apply to?
Merchant Cash Advance, Working Capital, Term Loan, Business Line of Credit, Invoice Financing, Revenue-Based Financing.
Is there a worked example of annual percentage rate?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside annual percentage rate?
Add-on interest, Amortization, Commercial financing disclosure law, Factor rate, Prepayment penalty.
Has this definition been checked?
Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.