[jotucker1983]

Jotucker I respectfully disagree. Your stating your definition of cost but we all know there is an implied interest rate. We've used the same logic in factoring for years but when asked about cost I think we're being asked about interest rate. I'm the leasing business we defined a lease factor as a way to avoid stating the effective interest rate.

Well, I agree in that when we are asked the "true cost" of the MCA, they are "trying to get us" to calculate an APR. The issue is that there's no APR or interest rate associated with the transaction, so I shouldn't be calculating it even if it's requested. I should instead be educating the merchant on the difference of an MCA v.s. that of a Loan.

Interest rates (along with their associated APRs) are associations of loan transactions, which have fixed payments and fixed terms. There's no fixed payment nor fixed term with a merchant cash advance transaction (legally), even though in a lot of ways "we" sell it as such.

[Cfairbank]

Well, I agree in that when we are asked the "true cost" of the MCA, they are "trying to get us" to calculate an APR. The issue is that there's no APR or interest rate associated with the transaction, so I shouldn't be calculating it even if it's requested. I should instead be educating the merchant on the difference of an MCA v.s. that of a Loan.

Interest rates (along with their associated APRs) are associations of loan transactions, which have fixed payments and fixed terms. There's no fixed payment nor fixed term with a merchant cash advance transaction (legally), even though in a lot of ways "we" sell it as such.

While APR may not ultimately be the "right" universal measure to compare financing alternatives, I do support coming to a uniform way to allow customers to compare options (to Zach's point, factor rate can also be misleading) -- and the same way we can argue that APR "overstates" the cost of short term products, total payback does the same thing for the low APR, longer term alternatives. John let me ask you this -- are the bulk of your deals still cash advances or are they increasingly loans? Most of the larger A paper players have switched to a loan product. We (Breakout) fund more in loan volume than cash advance volume as well (though we still do offer both). In that case, there is a term and there is an APR even if current industry convention dictates that these loans are still presented in factor rates or cents on the dollar. I agree you can't calculate APR on a cash advance; curious on broker feedback as it pertains to short term loans.

[BankComplianceGuy]

Interest rates (along with their associated APRs) are associations of loan transactions, which have fixed payments and fixed terms. There's no fixed payment nor fixed term with a merchant cash advance transaction (legally), even though in a lot of ways "we" sell it as such.

There's always an implicit interest rate. A transaction that involves a stream of payments extending over multiple future periods must incorporate an interest rate, even if there is no rate stated in the related business contract. This is also the most acceptable way for merchants to record and deduct this as an interest expense on their tax returns. This is the way its been done for decades with leasing.