Also known as: factoring rate, MCA factor rate, buy rate
A factor rate is a decimal multiplier — typically between 1.1 and 1.5 — used to price a merchant cash advance or short-term business loan. You multiply the amount advanced by the factor rate to get the total you will repay: a $50,000 advance at a 1.4 factor rate means repaying $70,000. Unlike an interest rate or APR, a factor rate is fixed and does not change based on how quickly you repay, so the dollar cost is set the moment you sign.
An interest rate accrues over time, so paying a loan off early saves you money; a factor rate is a flat, one-time multiplier, so the cost is the same whether you repay in three months or six. That makes factor rates look deceptively cheap — a 1.3 factor rate sounds smaller than a 30% APR, but because the money is repaid over a few months rather than a year, the annualized cost is far higher. To compare a factor-rate product to a traditional loan, you have to convert the total cost into an equivalent APR over the actual repayment period.
Funders set the factor rate based on perceived risk: stronger monthly revenue, longer time in business, healthier bank balances, and cleaner repayment history pull the rate toward 1.1-1.2, while weaker credit, thin deposits, or stacked existing advances push it toward 1.4-1.5. The rate is the funder's main lever for pricing a deal that a bank would decline, which is why factor-rate products fund fast but cost more than conventional financing.
Factor rates are how most merchant cash advances and short-term advances are quoted, so any broker or business owner working with non-bank funding needs to read them fluently — especially to translate a factor rate into a true cost and spot when an advance is far more expensive than it first appears.
Multiply the amount advanced by the factor rate. A $50,000 advance at a 1.4 factor rate means you repay $50,000 × 1.4 = $70,000 in total, regardless of how fast you pay it back.
No. An interest rate accrues over time, so early payoff saves money; a factor rate is a flat multiplier fixed at signing, so the dollar cost doesn't change with speed of repayment. A low-looking factor rate often translates to a very high equivalent APR over a few months.
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