A factor rate is a multiplier used to calculate a repayment amount. APR expresses an annualized borrowing cost using the timing of payments and applicable charges. A 1.20 factor rate does not mean 20% APR. To compare offers, you need the cash received, repayment schedule, fees and total amount paid.
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How Does a Factor Rate Work?
Multiply the stated funding amount by the factor to calculate the base repayment obligation, then check for any additional charges. The agreement controls whether early payoff changes that amount and whether fees are deducted before funds reach you.
A $25,000 Example
$25,000 × 1.20 = $30,000 of base repayment, a $5,000 difference. If an additional $750 is withheld upfront, you receive $24,250 rather than $25,000. Neither calculation tells you the annualized cost without the dates and amounts of the payments.
Why Does the Repayment Period Change the Comparison?
Paying the same dollar charge over a shorter period generally produces a higher annualized cost. Payments that reduce the balance along the way also matter. Simply multiplying a six-month charge by two does not produce an accurate APR for an amortizing schedule.
Request the provider’s applicable cost disclosures and a complete schedule. If you use a calculator, enter actual net proceeds and dated payments, and understand whether the output is an estimate rather than a legally prescribed disclosure.
Which Numbers Should I Put Side by Side?
- Net amount deposited after upfront charges.
- Total scheduled repayment and all separate fees.
- Number, amount and frequency of payments.
- Early-payoff calculation and any discount conditions.
- Whether collections are fixed or tied to revenue.
For example, a lower factor can still produce a difficult weekly burden when the schedule is short. Decide whether the business can carry that schedule in a slower month, not just whether the total dollar charge appears attractive.
Educational information, not a loan offer. Availability and terms depend on the program, property or business, and borrower qualifications. Legal and tax questions should be reviewed with your advisers.