Questions owners actually ask
What is a factor rate, and how do you convert it to an APR?
A factor rate is a multiplier, not an interest rate. 1.30 on $50,000 means you repay $65,000. Because it is repaid fast, the true annual cost is far higher than the number suggests.
A factor rate is a flat multiplier applied to the amount you receive. Borrow $50,000 at a factor rate of 1.30 and you repay $65,000 in total. The $15,000 is fixed on day one: it does not shrink if you pay early, the way interest does.
Why it is not an interest rate
Interest accrues over time, so paying off early saves money. A factor rate does not accrue. It is set at the start and owed in full regardless of how quickly you repay, unless the funder offers an early payoff discount. Always ask whether one exists.
Converting a factor rate to an APR
This is the calculation the industry rarely shows, and it is the one that matters. The same factor rate produces wildly different annual costs depending on the term:
| Advance | Factor | Total repaid | Term | Rough APR |
|---|---|---|---|---|
| $50,000 | 1.30 | $65,000 | 6 months | about 110% |
| $50,000 | 1.30 | $65,000 | 12 months | about 55% |
| $50,000 | 1.30 | $65,000 | 18 months | about 37% |
Same rate, same money, three very different costs. Term is the variable nobody points at. A short term makes a modest-looking factor rate extremely expensive in annual terms.
Is 1.30 a bad rate?
It depends entirely on what it is buying. A 1.30 that funds a piece of equipment which earns more than $15,000 over the same period is a good trade. A 1.30 used to cover a shortfall that will still be there in six months is how businesses end up stacking advances.
Run the numbers on our funding calculators before you sign anything.
Questions to ask before accepting one
- What is the total payback, in dollars?
- What is the payment, and is it daily, weekly or monthly?
- Is there a discount for paying it off early?
- What happens if a payment fails?
- Is there a personal guarantee or a confession of judgment?
Questions owners ask
Is a factor rate the same as interest?
No. Interest accrues over time and shrinks as you repay. A factor rate is fixed at the start and owed in full regardless of speed, unless the contract includes an early payoff discount.
What is a typical factor rate?
They commonly run from about 1.1 to 1.5 depending on risk, time in business and revenue consistency. The term matters as much as the rate.
Can I negotiate a factor rate?
Sometimes, particularly with strong deposits and no existing positions. The term and the early payoff discount are often easier to move than the rate itself.
Related
- Will applying hurt my credit?
- What lenders see in your bank statements
- Funding with an existing MCA
- Why was I declined?
- How much can I borrow?
- How fast can I get funded?
- What documents do I need?
- What credit score do I need?
- Can they take my house?
- What is a UCC filing?
- Can I pay off an MCA early?
- What if I miss a payment?
- Under a year in business?
- What is a holdback rate?
- Tax lien or judgment?
- Is my industry restricted?
- What does a broker charge?
- Why 3 different offers?
- Do I need collateral?
- Will they call my customers?
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General information, not financial or legal advice. Terms vary by lender and business.