A factor rate is a simple multiplier, usually written as a decimal like 1.25 or 1.40, that sets the total amount you will repay on a merchant cash advance or short-term business loan.
The formula
Total payback = advance amount × factor rate. The cost of capital is the payback minus the advance.
| Advance | Factor rate | Total payback | Cost |
|---|---|---|---|
| $25,000 | 1.25 | $31,250 | $6,250 |
| $50,000 | 1.30 | $65,000 | $15,000 |
| $100,000 | 1.35 | $135,000 | $35,000 |
Factor rate vs. interest rate
A 1.30 factor rate is not the same as 30% interest. Interest accrues over time on a declining balance, while a factor rate is applied once to the full amount. Paying $15,000 for $50,000 over 6 months is a much higher annualized cost than paying $15,000 over 18 months. To compare offers fairly, look at the term and the estimated APR, not just the factor rate.
What affects your factor rate
- Revenue strength and consistency. Steady deposits earn better pricing.
- Time in business. Longer track records lower risk.
- Existing advances. More open positions usually mean higher rates.
- Bank account health. Few negative days and healthy balances help.
- Industry and credit. Both play a role, though less than with a bank loan.
Check the math before you sign
Our MCA calculator turns any factor rate and term into a total payback, daily and weekly payments, and an estimated APR, so you can compare offers on equal terms.
