Factor rate vs APR, explained in plain English
A factor rate is a multiplier, not an interest rate. You multiply the amount advanced by the factor to get the total you pay back: $50,000 at a 1.30 factor means $65,000 repaid, so the cost is $15,000. An APR is an annual rate, which is why you cannot compare the two without knowing the repayment period — the same factor rate becomes a far higher annualized cost when the money is repaid quickly.
If you want the shorter version of how a quote like 1.30 is built, our guide to reading a factor rate covers the basics. This page is about the comparison.
The arithmetic, in three steps
- Turn the factor into a total. Advance × factor = total payback. $50,000 × 1.30 = $65,000.
- Subtract the advance to get the cost. $65,000 − $50,000 = $15,000.
- Annualize that cost against the time you hold the money. This is the step a factor quote skips, and the one that decides whether an offer is cheap or expensive.
| Factor rate | Payback on a $50,000 advance | Cost in dollars |
|---|---|---|
| 1.15 | $57,500 | $7,500 |
| 1.25 | $62,500 | $12,500 |
| 1.30 | $65,000 | $15,000 |
| 1.40 | $70,000 | $20,000 |
Why the same factor costs wildly different amounts
Take that same $50,000 at a 1.30 factor — $65,000 back, $15,000 of cost — and change only how fast it is repaid. Assuming equal payments across the term, the annualized cost looks like this.
| Repaid over | Cost in dollars | Approximate annualized cost |
|---|---|---|
| 3 months | $15,000 | about 400% |
| 6 months | $15,000 | about 153% |
| 12 months | $15,000 | about 65% |
| 18 months | $15,000 | about 41% |
Same fee. Same advance. The annualized cost falls by roughly a factor of ten between a three-month and an eighteen-month repayment, because the money is outstanding for far less time in the first case. A factor rate quoted without a term is half a price.
Two caveats, because they matter. The table assumes equal fixed payments, and many advances remit a percentage of sales instead, so real timing moves with your revenue. And the annualized figure is a comparison tool, not a disclosure: a merchant cash advance is a purchase of future receivables rather than a credit transaction, so it does not carry a regulated APR. Use the figure to rank offers against each other, not as a number anyone is bound to.
Why paying off early does not save money
With an interest-bearing loan, paying early reduces the interest you would have paid. With a factor-based advance, the total payback is fixed when you sign: the fee is attached to the advance, not to the calendar. Repaying early ends the schedule sooner; it does not normally shrink the fee. Unless your agreement says early payoff reduces the total, assume it does not.
Comparing two offers fairly
Quotes in different formats are not comparable on their face. Convert both the same way.
- Total payback in dollars. Always the first number.
- Cost as a percentage of the advance. $15,000 on $50,000 is 30%, which is the factor minus one.
- The term. The same cost over six months and over eighteen months are different products.
- The remittance. A fixed daily amount and a percentage of daily sales behave differently in a slow month, even at the same total cost.
- Your worst month. Run the payment against your slowest month of the last year, not your best.
Falcon merchant cash advances typically run $5,000 – $5,000,000 over 3 – 18 months for businesses with 3+ months in operation and $10K+ monthly revenue, with a 0% agreement fee. Falcon states there are no fees on the agreement value. Whatever a provider calls its charges, ask for the total they will collect and the date the last payment lands. A business line of credit works the other way round: you pay only on what you draw, for as long as you draw it.
The bottom line
Judge an offer by two numbers, not one: the total payback in dollars, and how long you hold the money. A low factor over three months can cost more per year than a higher factor over eighteen, and only the second number tells you which is which.
See your options or read how merchant cash advances are structured.
Frequently asked questions
What is a factor rate?
A factor rate is a multiplier applied to the amount advanced to produce the total repayment. A 1.30 factor on a $50,000 advance means $65,000 repaid, so the cost is $15,000, or 30% of the advance. It is not an interest rate and it does not change with time.
How do I convert a factor rate to an APR?
Multiply the advance by the factor to get total payback, subtract the advance to get the cost, then annualize that cost against the balance outstanding over the repayment period. On $50,000 at a 1.30 factor repaid in equal payments, the $15,000 cost is roughly 400% annualized over 3 months, 153% over 6 months, 65% over 12 months and 41% over 18 months. The conversion depends entirely on the term.
Is a 1.3 factor rate good?
Not on its own. A 1.30 factor means you repay 30% more than you borrow. Whether that is a good price depends on how long you keep the money and what it earns. Thirty percent over 18 months is a very different cost from thirty percent over three months. Compare it against a line of credit, where you pay only on what you draw and only while you hold it.
Why does paying off early not save money on an MCA?
Because the fee is fixed at signing rather than accrued over time. With an interest-based loan, each payment covers interest for that period, so ending the loan early cancels interest you have not yet incurred. With a factor-based advance, the total payback is set on day one, so prepayment shortens the schedule without reducing the amount owed.
Is an MCA APR the same as a loan APR?
No. A merchant cash advance is a purchase of future receivables, not a credit transaction, so it does not carry a regulated APR. Any annualized figure you calculate is a comparison tool for ranking offers, not a disclosure either side is bound to.