How the yearly cost is worked out

True Cost of Capital turns an offer's terms into the payments you'd make, then works out the yearly cost the way federal lending rules work out an APR: the actuarial method in Regulation Z, Appendix J. This page explains the method, what the terms mean and what the comparison is made of.

Work out your offer's yearly cost

Why is the yearly cost higher than the fee?

A flat fee is a price for the whole term, not a yearly rate, and it's paid back while you're still using the money. Take $10,000 with a $1,600 fee. Paid back all at once after 270 days (about 9 months), the yearly cost is 21.6%. Paid back in daily payments over the same 270 days, it's 41.0%: payments start the day after the money arrives, so on average you have only about half of it for the 270 days you're paying for.

How fast it's paid back sets the rate

The same $10,000 and $1,600 fee, paid back in daily payments. A month here is a twelfth of a year, so 9 months is about 274 days. That's slightly longer than the 270 above, which is why it reads a little lower.

With a share of sales, the fee is fixed but the payoff time isn't: strong sales pay it off sooner, and the same fee then costs more per year.

How is it worked out?

• The offer becomes dated payments. A share of sales or profits is paid at a steady pace, from the offer's estimated payoff time or from the share of a usual month's sales. A minimum payment adds a top-up at the end of any window where the share falls short. A payoff deadline adds whatever is still owed on that day. Fixed payments and a single payment are used as given.
• The rate that matches the money received. The yearly cost is the rate at which those payments, each counted back to the day the money arrives, add up exactly to the amount you received. Fees taken out up front lower the amount received.
• Per period, then per year. The rate is found per unit period and multiplied by the number of unit periods in a year. Following Appendix J, the unit period is the time between payments that occurs most often: a day for daily payments, a month for monthly ones. For a single payment it's the whole term, up to a year.

The calculator runs in your browser. Its results were checked against a separate implementation of Appendix J, written from the regulation, on thousands of test offers.

What do the terms mean?

• Fee: what you pay on top of the amount.
• Total payback: the amount plus the fee.
• Factor rate: the total paid back for each dollar. 1.16 means $1.16 back for every $1, so $11,600 on $10,000. On its own it says nothing about the yearly cost, which depends on how fast it's paid back.
• Share of sales (holdback): the percentage of your sales that goes to repayment until the total is paid.
• Minimum payment: an amount, or a percentage of the total, that has to be paid in each window of days whatever your sales.
• Payoff deadline: the day by which anything still owed is due.
• Fees taken out up front: deducted before the money arrives, so you receive less than the amount offered.
• APR on the offer: some offers show one. It can differ from the one worked out here, because APRs can be figured in different ways and on different assumed payment schedules.

What does the comparison include?

• 1,763 real deals and offerings in all, nearly all disclosed in public SEC filings: crowdfunding offering statements and annual reports, Regulation A filings, and public companies' registration statements and annual reports.
• 271 capital offers from Square, Shopify, Stripe, PayPal, Clearco and other platforms, from 109 businesses. Those whose figures a filing states plainly set the headline and the typical offer.
• 212 cash advances and short-term loans from other funders, shown on a line of their own.
• 10 bank and SBA loans made since 2022, compared by their stated yearly rate. A bank loan's headline is against them. Older loans aren't used, because rates rose through 2022, and neither are pandemic relief loans (PPP and EIDL), whose terms were set by law.
• 1,270 loans, bonds and revenue-share notes offered or sold through small-business crowdfunding, for what customer-backed raises have cost. Most SMBX bond issuers don't file a closing report, so those show stated terms. The bar adds a typical 7.5% platform fee (SEC staff, 2025), but not legal or accounting costs.
• Every offer's fee is costed at your own payoff time, so the headline ranks fees, not yearly costs. Only about one offer in ten in the filings states a payoff time, and those are shown on a line of their own. Each business counts once, no group under five businesses is shown, and groups under 20 get words rather than a percentage.
• Offers people enter here count only once they're tied to an account. With the few from forums and blogs, and filings that leave a figure unclear, they're shown separately.
• The merchant capital offers that state a payoff time all ran under two years, so an offer that runs longer is shown beside bank loans and customer-backed raises instead.

What it doesn't know

• It assumes your sales hold steady at the pace you enter. If they speed up or slow down, the payoff time changes, and so does the yearly cost.
• Payments are spread over the calendar, not set on your actual dates. Business-day payments run Monday to Friday, with about ten holidays a year.
• It's an estimate for information, not financial or legal advice. Check every figure against your agreement.

Work out your offer's yearly cost