Factor Rate

How a factor rate works

A factor rate is fixed cost, decided the moment you sign. If a provider funds $50,000 at a 1.30 factor rate, your total payback is $65,000 — the $50,000 you received plus $15,000 of cost. That $15,000 does not shrink if you pay early, and it does not grow if repayment drags on. It is a flat, pre-set number.

This is the single most important difference between a factor rate and an interest rate. Interest accrues over time, so paying a loan off early saves you money. A factor rate does not accrue — the cost is baked in on day one.

Worked example

Two identical advances, repaid at different speeds.

• Amount funded — Advance A: $50,000 | Advance B: $50,000
• Factor rate — Advance A: 1.30 | Advance B: 1.30
• Total payback — Advance A: $65,000 | Advance B: $65,000
• Cost — Advance A: $15,000 | Advance B: $15,000
• Repayment period — Advance A: 6 months | Advance B: 12 months
• Approximate simple annualized cost — Advance A: ~58% | Advance B: ~29%

Treat those last two figures as a floor, not an answer. Simple annualization divides total cost by the amount funded and scales it to a year, which quietly assumes you keep all $50,000 for the entire term. You do not. Remittances start within days, so the money you actually have the use of falls steadily toward zero and averages roughly half the funded amount across the term. Price the same $15,000 of cost against that declining balance and a level remittance schedule works out to approximately 109% APR over six months and 55% APR over twelve — against the 58% and 29% the simple method reports. Measured instead as an effective annual rate, which compounds the daily rate, the same two advances come to roughly 197% and 73%.

Same funding. Same factor rate. Same dollar cost. Twice the annualized cost on Advance A — purely because the money was repaid twice as fast.

This is why "1.30" tells you almost nothing on its own. A factor rate without an expected repayment period is half a price tag.

What it means for your business

When you compare offers, do not compare factor rates to each other. Compare three numbers side by side:

1. Total payback — funded amount × factor rate
2. Expected repayment period — based on the holdback rate and your realistic sales, not your best month
3. Effective annualized cost — what the deal actually costs on a scale you can compare to a term loan or line of credit

An advance at 1.22 repaid in four months can cost more in annualized terms than one at 1.35 repaid over fourteen. The cheaper-looking rate is not always the cheaper deal.

What to watch for

• Early payoff usually saves less than you expect. Because the cost is fixed, paying off a factor-rate advance early does not automatically reduce what you owe. Some providers offer a discount, many do not. Ask for a written payoff figure at 30, 60, and 90 days before you sign.
• Fees sit on top of the factor rate. Origination, underwriting, and ACH fees are usually separate. A 1.28 factor with a 3% origination fee costs more than a 1.30 with none.
• Renewals reset the clock. Rolling into a new advance typically means paying off the old balance and starting a fresh factor rate on the full new amount. Ask how much of your existing cost you are re-paying.
• Beware a simple-annualized figure shown next to a bank APR. Some providers and brokers convert a factor rate using the simple method, then set the result beside a term loan's APR as though the two are comparable. They are not built the same way — one ignores the declining balance and the other does not — so the advance can look roughly half as expensive as it is. Ask for the number on an APR basis, or convert it yourself before you compare.
• A factor rate is not an APR and cannot be legally presented as one. If a provider quotes you "30% interest" on a 1.30 factor rate, that is a red flag about the provider, not a description of the product.

Is a 1.3 factor rate the same as 30% interest?

No. A 1.30 factor rate on $50,000 costs $15,000 regardless of the repayment period. A 30% annual interest rate on the same $50,000 would cost far less if repaid in six months, and the cost would fall further with early payoff. Because most advances are repaid in 6–12 months, a 1.30 factor rate typically works out to an annualized cost well above 30%.

What is a good factor rate for an MCA?

Factor rates commonly range from about 1.10 to 1.50. Where you land depends on time in business, monthly deposits, deposit consistency, industry, and whether you already have other advances outstanding. Anything at the high end usually reflects a risk factor the underwriter has priced in — and that risk factor is often something you can fix and re-apply.

Can I negotiate a factor rate?

Sometimes — more often on renewals than on a first advance, and more often when you have competing written offers. The larger lever is usually not the rate itself but the holdback rate and payment frequency, which control the cash-flow pressure you actually feel week to week.