A factor rate is a multiplier applied once to the amount advanced. A 1.30 factor on $50,000 means $65,000 is repaid in total — $15,000 is the cost. Unlike interest, it does not accrue over time, so paying early does not reduce it unless the agreement includes an early payoff discount.
Factor rate versus interest rate
Interest accrues on the balance you still owe, so it shrinks as you repay. A factor rate is fixed at the outset against the full amount. That is the single most important difference, and it is why a factor rate cannot be compared directly to an APR without converting it first.
The conversion depends heavily on the term. The same 1.30 factor costs far more in annualised terms over six months than over eighteen, because you are paying the same fixed cost across a shorter period.
Working out what it costs you
Multiply the advance by the factor to get the total repayment. Subtract the advance to get the cost. Divide the total repayment by the number of payments to get the payment amount.
On $50,000 at 1.30 over 92 daily payments: $65,000 total, $15,000 cost, roughly $707 a business day. Whether that works is a cash-flow question, not a rate question — the right test is whether the daily payment fits alongside payroll and suppliers.
What moves the factor
Time in business, deposit consistency, the industry, whether other funding is already being repaid, and account conduct. Stronger files price lower. It is not a published rate card — the same business can see meaningfully different offers depending on how the file is presented.
A worked comparison
Two offers on $40,000. The first: factor 1.22, repaid over 6 months. Total $48,800, cost $8,800, roughly $376 a business day. The second: factor 1.38, repaid over 15 months. Total $55,200, cost $16,400, roughly $169 a business day.
The second costs almost twice as much in total but takes less than half as much out of the account each day. Neither is objectively better. If the money funds something that pays back within a quarter, the first is cheaper. If it has to coexist with payroll for a year, the second is the one that survives contact with reality.
This is why comparing factor rates alone tells you very little. The term and the payment amount decide whether an offer is affordable; the factor only decides what it costs.
Read next: Merchant cash advance · What funding costs · Working capital
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