The cap multiple, and what the same multiple costs at three different growth rates

A cap multiple is a total, not a rate. It tells you what leaves your account in the end. It says nothing about when, and when is most of what determines whether a cost is reasonable.

What the multiple is

Multiply the amount advanced by the cap and you have the total repayment. The difference is the cost, in dollars, fixed at signing. There is no accrual, no daily interest calculation, no balance that shrinks faster because you paid early. Under a plain cap, paying early buys you time back and nothing else.

This is the same structure as a factor rate on a merchant cash advance, and it carries the same trap: a number that looks like a small percentage is not a percentage of anything annual.

The same multiple at three speeds

Illustrative only — invented figures, chosen to make the arithmetic visible. No part of this is a market rate or a quoted price.

Suppose 250,000 advanced at a cap of 1.25. Total repayment 312,500. Cost 62,500. Remittance is 6% of monthly revenue, starting from revenue of 400,000 a month, so the first month's remittance is 24,000.

• Flat revenue. 312,500 divided by 24,000 is about 13.0 months.
• Revenue growing 5% a month. The remittance grows with it: 24,000, then 25,200, then 26,460, and so on. The running total reaches 312,500 in about 10.3 months.
• Revenue declining 3% a month. The remittance shrinks the same way. The total is reached in about 16.3 months, assuming the business is still there and no minimum-payment or outside-maturity clause intervenes first.

Now convert each to something comparable. The average balance outstanding across the life of the deal is roughly half the advance, about 125,000. Sixty-two thousand five hundred of cost on 125,000 of average balance is 50% of the money in use, so:

• 13.0 months (1.08 years): about 46% a year.
• 10.3 months (0.86 years): about 58% a year.
• 16.3 months (1.36 years): about 37% a year.

Same contract. Same cap. Same 62,500. Three different costs of money, and the fastest-growing version is the most expensive one.

These are approximations, not disclosed APRs. An APR is computed from actual payment dates and amounts. Where a state commercial financing disclosure applies — New York's Commercial Finance Disclosure Law under NY Financial Services Law art. 8, or California's regime under SB 1235 and the DFPI regulations — the provider has to give you a rate figure computed to the rule, and that figure is the one to compare across offers.

Fees move the multiple you actually paid

The cap is applied to the amount approved. What arrives in your account is the amount approved minus whatever is netted at funding.

Illustrative only: a 3% origination fee on the same 250,000 is 7,500, so 242,500 lands. Total repayment is still 312,500. Divided by the cash you received, that is an effective multiple of about 1.29, not 1.25. On a shorter deal, that gap matters more, because you are paying the fee over fewer months.

What the multiple cannot tell you

Two offers at the same cap can behave completely differently depending on the remittance percentage, the debit frequency, whether there is a minimum payment, and whether reconciliation is mandatory. A lower cap with a higher percentage finishes sooner and costs more per year of use. A higher cap with a low percentage is cheaper per year and sits on your revenue for longer, blocking other financing while it does.

The renewal arithmetic

If a funder offers more money before the current deal is finished, the remaining balance is normally rolled into the new advance and the new cap is applied to the whole figure, including the unearned cost sitting inside the old one. Illustrative only: 90,000 still owed, 160,000 of new cash wanted, and a 1.28 cap applied to the combined 250,000 produces 320,000 repayable and 70,000 of new cost. Part of that 70,000 is a second charge on money you have already paid for once, which is what double dipping means. Ask for the payoff figure and the net new funding figure as two separate numbers before you agree to anything.

The clause that takes the protection back

A revenue share is supposed to shrink when revenue shrinks. Two clauses undo that, and they usually sit in the same paragraph: a minimum periodic payment, and an outside maturity date by which the whole cap must be delivered regardless of sales.

Illustrative only, on the same deal — 312,500 to deliver, with a minimum monthly payment of 20,000. The declining case above ran 16.3 months at 6% of revenue. Under the minimum, the longest the deal can run is 312,500 divided by 20,000, which is 15.6 months, and the payment stops tracking the business. In month one the minimum is 5% of revenue, comfortably under the contractual 6%, so it never bites and nobody mentions it. By month twelve, with revenue down to about 286,000, that same 20,000 is 7.0% of revenue. By month sixteen it is 7.9%. The effective share rises exactly as the business weakens, which is the reverse of what the structure is sold as doing.

Ask for the minimum payment and the outside maturity date as two specific figures, then divide the cap by the minimum yourself. If the answer is close to your realistic term, you are not buying a revenue share. You are buying a fixed-payment obligation with a revenue share printed on the front, and it should be priced and stress-tested as one.

Questions that get you a real comparison

• Total repayment in dollars, and total cash delivered after fees.
• The remittance percentage, the revenue base it is measured against, and the debit frequency.
• Any minimum payment, and any outside maturity date.
• Whether an early payoff reduces the total, in writing, with the window stated.
• The disclosure figure, where a state rule requires one.

Then run your own three scenarios: flat, better than plan, worse than plan. If the deal only works in the third column of your own forecast, the cap is not your problem.