Factor rate
A factor rate is the cost of a merchant cash advance or some short-term financing, written as a decimal multiplier (for example 1.3) instead of an annual percentage rate.
Instead of charging interest over time, a factor rate sets a fixed total cost up front. Multiply the amount funded by the factor rate to get the total the provider will collect. At a 1.3 factor rate, $50,000 funded means $65,000 collected in total, no matter how quickly you pay it down.
Because a factor rate is not an annual rate, it is easy to underestimate. The same factor rate is far more expensive in effective terms over three months than over twelve. Compare offers in total dollars, not by the factor number alone.
Common questions
How is a factor rate different from an interest rate?
An interest rate accrues over time on the balance that remains. A factor rate is a one-time multiplier set at funding, so the total cost does not change based on how fast you pay.
What is a typical factor rate?
Factor rates commonly range from about 1.1 to 1.5 depending on the provider, your sales, and your business profile. Always confirm the total dollar cost.
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