Guide

How to turn a factor rate into a cost per month a practical guide.

A factor rate tells you the total. Turning it into a monthly cost lets you compare it with other options honestly.

✓ Checking what you qualify for does not affect your credit score.

Overview

A factor rate tells you the total. Turning it into a monthly cost lets you compare it with other options honestly.

Start with total cost

Multiply the amount by the factor to get the payback, then subtract the amount. A $30,000 advance at 1.24 costs $7,200.

That figure is fixed. Unlike interest, it does not grow if repayment takes longer, and it does not shrink if repayment is faster unless the agreement includes an early-payoff discount.

Divide by the months

Divide the cost by the expected repayment months. $7,200 over six months is $1,200 a month for the use of $30,000. Over nine months it is $800 a month.

This is the number to compare with what the money earns you each month, whether that is new sales, saved costs or avoided penalties.

Compare with alternatives

For a bank loan, use the interest paid per month. For a card, use the interest on the carried balance. Put them side by side in dollars per month for the same amount.

Annualizing a factor rate into an APR is possible but often confusing. Dollars per month is simpler and harder to misread.

Test against your return

If the money produces more per month than it costs, the decision is sound. If it produces less, or nothing measurable, reconsider the request or its size.

A $1,200 monthly cost to fund equipment that adds $3,000 a month in gross profit is a good trade. The same cost to cover losses with no end in sight is not.

Ask the right questions

Ask for the payback in dollars, the expected repayment period and any fees deducted from the amount. Fees reduce what you receive and raise the real cost.

Write the answers in one line per offer. Comparing offers becomes arithmetic rather than guesswork.

Typical starting points

Monthly revenueTypically from around $20,000 a month in deposits for Canadian files. The exact line varies by funder and by file.

Time in businessTypically about 12 months. Newer businesses can be reviewed, but the options narrow.

Account healthLimited low-balance or negative days. Funders read the last few months of bank statements for this.

CreditScores from 500 are considered. A score of 600 or higher opens more options and better offers.

DocumentsA signed application and recent business bank statements, typically the last four months.

Existing advancesFiles with an existing advance can be reviewed, including second position.

Common questions

Is this advice for my situation?

It is general education. Your file and agreements are specific, so read them and ask questions.

What should I do next?

Gather four months of statements and write what the money is for in one sentence.

Can you help me apply?

Yes. Apply once and the file is matched to the structure that fits.

Keep reading

GuidesPractical guides for Canadian owners GlossaryPlain-language definitions Funding requirementsTypical starting points for Canadian files Documents you needWhat to have ready before you apply Funding use casesPayroll, inventory, expansion and more

Educational information only. It is not legal, tax or accounting advice.

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