Factor rates
A factor rate looks like a small decimal, and it hides most of the cost question. Here is the arithmetic, what changes the number, and how to compare two offers fairly.
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At Merchant Fund Express, here is the short answer: A factor rate is a multiplier set at funding. Amount received times the factor is the total payback, and it does not shrink when you pay early unless the agreement says it does.
A factor rate is a multiplier. Amount received × factor rate = total payback. The difference is your cost. Because the total is fixed when you sign, the cost does not shrink the way interest does when a balance is paid down.
| Item | Amount |
|---|---|
| Amount received | $40,000 |
| Factor rate | 1.28 |
| Total payback ($40,000 × 1.28) | $51,200 |
| Cost ($51,200 − $40,000) | $11,200 |
All figures in worked examples are illustrations of the arithmetic, not offers or quotes. Real terms depend on your file and the funder.
Account stability, balances, negative days and existing positions all read into how the funder sees repayment risk.
A short payback usually carries a lower factor rate because the money is out for a shorter time. A long payback carries more.
A first-position advance is priced differently from a second or third because the claim on receivables is different.
Revenue that swings sharply from week to week is priced for that swing.
Two offers can carry the same total payback over very different timelines. Compare by what you pay and how fast you pay it.
| Received | Factor | Payback | Time | Cost | |
|---|---|---|---|---|---|
| Offer A | $50,000 | 1.25 | $62,500 | 4 months | $12,500 |
| Offer B | $50,000 | 1.32 | $66,000 | 9 months | $16,000 |
Offer A costs less in dollars and is repaid faster, but its daily payment is heavier. Offer B costs more and fits a tighter cash cycle. Neither is wrong; the right one depends on what your margin can carry.
Try the factor rate calculator to compare offers, and read factor rate vs interest rate and factor rate to APR for the annualized view.
Two offers arrive on the same afternoon. One is 1.22 over nine months, the other 1.30 over four. The first looks cheaper on its face, but it ties up the money longer and keeps a payment on the account for most of a year. The second costs more but ends before the busy season. The owner picks on payback, term and what each does to her cash cycle, not on the decimal.
Source: Merchant Fund Express.
No. A factor rate is a fixed multiplier set at funding; an interest rate accrues on a declining balance. That is why the two cannot be compared directly without converting. Source: Merchant Fund Express.
Only if the agreement says so. Some include an early payoff discount and many do not. Ask before you sign.
It varies with the file, the term and the position. We do not publish a range because the number depends on the funder and your statements; you see the exact figure before you sign. That is how Merchant Fund Express reads it on a real file.
Sometimes. A stronger file, a shorter term or a smaller request can change the number, and offers from different funders can be compared side by side.
Merchant Fund Express gives a same-day decision. Applying takes a few minutes and will not affect your credit score.
