A flat fee is not an interest rate, and the conversion is not close. Shopify's own documentation uses a $100,000 advance with a 13% fixed fee as its worked example. Repaid over 18 months, that costs about 18.3% a year. Repaid over six months, because sales were strong, the same deal costs about 65.4% a year. Nothing in the contract changed; only the time did. Before accepting any offer that arrives inside your payments dashboard, convert the fee into an annual rate at the repayment speed you actually expect, and ask the funder for that number in writing. In ten US states they are required to give it to you.
The offer as it appears
Embedded financing has become a default feature of payment platforms rather than a product you go looking for. Shopify Capital (opened 28 July 2026) offers up to $2M in the United States, Canada, United Kingdom and Australia, repaid as a percentage of daily sales, requiring 90 days of selling history and no personal credit check. Stripe Capital (opened 28 July 2026) offers business loans and merchant cash advances depending on location, charging "a flat, one-time financing fee" that "never changes", with "no compounding interest charges, or late fees", funded typically the next business day. Its published illustrations are $1,500 on $15,000, $2,000 on $20,000 and $2,500 on $25,000, all 10%, with repayment shown at 9%, 12% and 15% of daily sales.
Everything in those two paragraphs is true and none of it is comparable to a bank quote, because a bank quotes a rate per year and these quote a fee per deal. The two numbers answer different questions.
The conversion table
Our arithmetic. Method: treat the advance as a series of equal daily payments totalling principal plus fee, spread across the repayment period, solve for the daily internal rate of return, and annualise it. Assumptions stated so you can argue with them: even daily repayment, no early-payoff discount, no origination or administrative fees on top, and no gap between funding and the first payment.
| Flat fee | Repaid in 6 months | 9 months | 12 months | 18 months |
|---|---|---|---|---|
| 10% | 47.8% | 29.8% | 21.6% | 14.0% |
| 13% | 65.4% | 40.0% | 28.7% | 18.3% |
| 15% | 78.1% | 47.1% | 33.6% | 21.3% |
Read the rows before the columns. A 10% fee, which sounds mild, is a 47.8% annual cost if the money comes back in six months. The reason is straightforward: you do not hold $100,000 for the whole term. Under daily remittance you hold an average of a little over half of it, so the fee is charged against roughly half the money for the whole period. That is the entire difference between a fee and a rate, and it is why the two are not translatable without knowing the term.
The direction that surprises people
Paying it off faster makes it more expensive. Not in dollars, which are fixed, but in cost of capital, which is what you compare against every other use of the money. Strong sales speed up the remittance, which shortens the term, which raises the effective rate on a fee that never moves.
This is not hypothetical, because the contract sets a floor under the speed. Shopify's US documentation (opened 28 July 2026) requires 30% of the total repaid by six months and 60% by twelve, with a maximum term of 18 months. So the slow, cheap end of our table is not fully available: the milestones pull you toward the middle columns whether or not your sales cooperate. Stripe applies the same logic differently, with a minimum payment per period and an automatic bank debit for any shortfall at the end of it, which means a slow month does not extend the term for free either.
Two structural details that get skipped in the excitement of a same-week approval. Shopify's fixed-fee product in the US is a loan issued by WebBank, secured by a security interest in business assets with a possible UCC-1 filing, not the unsecured advance the marketing language implies. And Stripe's US merchant cash advances are provided by YouLend while its loans come from Celtic Bank, so the product name on the dashboard tells you less than the counterparty does.
Ten states now force the number out
The most useful lever here is regulatory, and most merchants do not know they hold it. California's SB 362 (opened 28 July 2026), approved 6 October 2025, requires a commercial financing provider to disclose an annual percentage rate whenever it states "a charge, pricing metric, or financing amount" during an application for a specific offer. It also bars using "rate" or "interest" deceptively, naming the exact tricks: describing a non-annual rate as "simple interest", or calling a daily or weekly rate an "interest rate". For licensees, a breach violates the California Financing Law; for unlicensed providers, it is an unfair or deceptive practice under the California Consumer Financial Protection Law.
California is not alone. Venable's survey of state commercial financing disclosure laws (opened 28 July 2026) lists California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah and Virginia as having laws in force, with Connecticut and Virginia covering sales-based financing specifically. Texas HB 700, effective September 2025, covers sales-based financing only and requires disclosure of the total amount financed, the finance charge, the total repayment amount, all potential fees and the repayment terms, with provider registration due by 31 December 2026.
Caveat worth stating: coverage, thresholds and exemptions differ by state, and the survey we opened does not give effective dates or transaction caps for every one of them. Do not assume your state's law reaches your deal. Do assume that asking for an APR in writing is a normal request that a legitimate funder in any of those ten states is set up to answer.
Six things to send the funder before you click accept
- The APR or estimated APR at your expected repayment speed, in writing, and the term assumption used to calculate it.
- Whether there is any discount for early repayment. If the answer is no, the fee is fixed and speed only costs you.
- The remittance percentage, and what happens in a month when sales fall short: is the balance debited from your bank account, and on what date.
- Every fee outside the headline fee: origination, administrative, wire, and any charge for a failed debit.
- Whether the agreement creates a security interest in business assets, and whether a UCC-1 will be filed.
- Who the lender actually is, as distinct from the platform whose dashboard you are looking at.
The $100,000 decision, run properly
Say you are offered $100,000 at a 13% fee against a store doing $60,000 a month, at a 12% remittance. Twelve percent of $60,000 is $7,200 a month, so $113,000 comes back in roughly 16 months if sales hold flat, which lands near the 18-month column: call it 19% to 20% a year. Now stress it. A good quarter that lifts sales by half repays it in about 11 months instead, which pushes the cost past 30%. Your comparison is not "is 13% a lot", it is "does the inventory, the ad spend or the hire this funds return more than 30% annualised, in the window where the money is actually deployed". For a seasonal inventory buy at a healthy margin, often yes. For covering a slow month, almost never, because you are borrowing at 30% to fund the thing that is already not working.
The alternative worth pricing against it is slower and cheaper. Federal disaster lending, where you qualify, is capped at 4% for businesses that cannot borrow elsewhere, which we covered in the piece on the two deadlines most damaged businesses miss. And before borrowing to cover fee pressure, check what your platform is already taking off the top: the percentages in our comparison of platform gateway penalties are frequently larger than the margin the advance is meant to protect. Cheap capital is often just a fee you stopped paying.
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