What is a Factor Rate?
MCA Costs Explained Simply.

Factor rate: the simple definition

A factor rate is a decimal multiplier applied to your advance amount to calculate the total amount you repay. It's expressed as a number like 1.20, 1.30, or 1.45.

The math is straightforward:

Total Repayment = Advance Amount × Factor Rate

For example:
• $30,000 advance × 1.25 factor rate = $37,500 total repayment
• $50,000 advance × 1.30 factor rate = $65,000 total repayment
• $100,000 advance × 1.40 factor rate = $140,000 total repayment

The difference between what you receive and what you repay is the cost of the advance.

How is a factor rate different from an interest rate?

An interest rate compounds over time — the longer you take to repay, the more you pay. A factor rate is fixed from day one. Whether you repay your advance in four months or eight months, the total repayment amount doesn't change.

This predictability is one of the most practical features of a merchant cash advance. You know exactly what you'll repay before you accept your offer — no surprises, no variable rate changes.

What factor rates are typical?

Factor rates typically range from 1.10 to 1.50, depending on several factors:

• Monthly revenue volume — higher revenue generally results in better rates
• Time in business — longer-operating businesses typically see lower factor rates
• Industry — some industries are considered higher risk and carry higher rates
• Bank statement health — consistent deposits and positive balances improve your rate

Your specific factor rate will be included in your offer and is fixed for the life of the advance.

How does repayment actually work?

Repayment happens automatically via fixed ACH withdrawals from your business checking account, Monday through Friday. The daily withdrawal amount is calculated at the time of your offer based on your advance amount, factor rate, and expected repayment term.

For example, a $50,000 advance with a 1.30 factor rate might be structured to repay over 12 months with daily withdrawals of approximately $250 on business days. You'll know this amount before you accept.

Is a factor rate the same as APR?

No — and this is an important distinction. APR (Annual Percentage Rate) accounts for the time value of money and compounds over the loan term. Factor rates don't.

Converting a factor rate to an APR equivalent tends to produce a large-looking number, which can be misleading for a short-term funding product. The more useful question is: what is the total cost of the advance, and does the value my business gets from the capital justify that cost? For many businesses, the answer is yes — especially when the alternative is no capital at all.