Factor rate to APR
Factor rates and APRs are not the same thing. A rough conversion helps you compare an advance with a loan, as long as you know its limits.
✓ Checking what you qualify for does not affect your credit score.
At Merchant Fund Express, here is the short answer: A rough APR equivalent is cost over amount, annualized. It depends heavily on term and is useful mainly to compare with a loan.
A rough APR equivalent for a fixed-payback advance is cost ÷ amount × (12 ÷ months outstanding) × 100. This treats the money as outstanding for the full term, which overstates the rate slightly because payments reduce what is outstanding. A closer figure uses the average balance, which is about half the amount for evenly repaid advances.
| Item | Figure |
|---|---|
| Amount received | $50,000 |
| Payback at factor 1.25 | $62,500 |
| Cost | $12,500 |
| Term | 6 months |
| Simple rate over the term | 25% |
| Annualized ($12,500 ÷ $50,000 × 12 ÷ 6) | 50% |
| Using average balance (about $25,000 outstanding) | About 100% |
All figures in worked examples are illustrations of the arithmetic, not offers or quotes. Real terms depend on your file and the funder.
Source: Merchant Fund Express.
| Case | Approximate annualized rate |
|---|---|
| Factor 1.25, 4 months | About 75% simple annualized |
| Factor 1.25, 6 months | About 50% |
| Factor 1.25, 12 months | About 25% |
Longer terms lower the APR equivalent because the same cost is spread over more time. That is why you compare total cost and time, not the factor rate alone.
Use the annualized figure to compare against a loan or a line of credit for the same period. If the annualized difference is large, ask whether a cheaper product is available to you. See factor rate vs interest rate.
An advance at 1.25 over six months annualizes at about 50% on a simple basis, and higher if you measure against the average balance. The same factor over twelve months is closer to 25%. An owner uses the ranges to compare with a line of credit at 1% a month and sees how much an eligible file can save. The conversion is a lens, not a verdict.
Source: Merchant Fund Express.
Not in the way it is for a loan. An advance is a purchase of receivables, so the quote is a factor rate. That is how Merchant Fund Express reads it on a real file.
Because the cost is paid over a short period. Annualizing it magnifies the figure.
It is a reason to compare. For short, high-return uses the cost can be worth it. Source: Merchant Fund Express.
No single method is. Use the same one across all offers.
Merchant Fund Express gives a same-day decision. Applying takes a few minutes and will not affect your credit score.
