Factor rate
factor rate vs APR / MCA factor rate / factor rate calculator
A factor rate is the multiplier some business funders use to price an advance: take $40,000 at 1.35 and you repay $54,000. It reads like a 35% cost, yet it ignores time. Repaid over six months of daily debits, that example works out to an annual percentage rate near 126%.
Factor rates price merchant cash advances and some other short term business funding. The price is a decimal. Multiply the amount you receive by it, and the answer is the total you pay back.
The Federal Trade Commission describes a merchant cash advance as money provided in exchange for a percentage of a business's revenue. The provider typically makes daily withdrawals from the business's bank account until the obligation has been met.
The multiplier leaves out the thing that sets the real cost, which is how fast the money goes back. A 1.35 factor repaid over twelve months and the same factor repaid over six carry the same total payback. The six month version costs about twice as much per year, because you hold the money half as long.
California treats the gap as a disclosure problem. SB 362, approved in October 2025, lists pricing described as a factor rate among its examples of confusing representations when that rate diverges materially from the APR. It requires a provider that states a charge or pricing metric for a specific offer to also state the annual percentage rate.
In practice
Take a $40,000 advance at a factor rate of 1.35. The payback is $54,000, so the cost is $14,000. Collected in equal daily debits over 126 business days, about six months, each debit is $428.57 and the annual percentage rate comes to about 126%. Spread the same deal over 252 business days and it falls to about 63%. The figures are a worked example.
Not the same as
- Annual percentage rate
- APR states the cost per year, so it reflects how long you hold the money. A factor rate states the total multiple and stays the same whether repayment takes six months or twelve.
Why it matters to you
Two offers with the same factor rate can differ twofold in yearly cost. Get the annual percentage rate and the total payback in writing for every offer, then compare them side by side. A factor rate alone cannot rank two offers with different repayment speeds.
What to ask or check
- 01What is the annual percentage rate on this specific offer, and how was it calculated?
- 02What is the total payback in dollars, and how much comes out of the account each day or week?
- 03What happens to the payments if revenue drops in a slow month?
What people get wrong
That a factor rate of 1.35 is a 35% interest rate. The multiplier stays fixed however long repayment takes, so the faster the money goes back, the higher the yearly cost.
Red flags
- An offer that quotes a factor rate and no annual percentage rate.
- A daily or weekly debit amount nobody has written down before signing.
- A confession of judgment clause, the kind the FTC alleged one provider used to pursue customers' personal assets in court.