- A factor rate is a decimal multiplier (usually 1.1–1.5), not an interest rate — multiply it by the amount funded to get total repayment.
- The full cost is fixed up front, so paying off early usually does not save you money.
- Convert a factor rate to an APR before comparing it against term loans or lines of credit.
How a factor rate works
When you take a merchant cash advance (MCA) or similar short-term advance, the lender doesn’t quote an interest rate — they quote a factor rate, a simple decimal that sets the total cost up front. You multiply the amount funded by the factor rate to get your total payback.
For example, a $50,000 advance at a factor rate of 1.3 means you repay $65,000 total — the extra $15,000 is the cost of the money, regardless of how quickly you pay it back.
Why factor rates can be deceptive
A factor rate looks small next to a percentage, but it isn’t an annual figure. Because the full cost is fixed and the repayment term is short (often 6–18 months), the equivalent APR can be much higher than the factor rate suggests — sometimes 40%–100%+. And unlike interest, paying off early usually doesn’t save you money, since you still owe the full factored amount.
How to compare offers
- Always ask for the total dollar cost, not just the factor rate.
- Ask whether there’s any early-payoff discount (many MCAs don’t offer one).
- Convert to an APR when possible so you can compare against term loans and lines of credit, which are usually cheaper.
If a factor-rate product is the only thing you qualify for today, that’s useful to know — but it’s worth checking whether you qualify for lower-cost financing first. Hoss Capital can match you with options across the cost spectrum so you can compare real numbers.
Frequently asked
How do you calculate a factor rate? +
Multiply the amount funded by the factor rate. For example, $50,000 × 1.3 = $65,000 total repayment — meaning $15,000 is the cost of the advance.
Is a factor rate the same as an interest rate? +
No. Interest accrues on a declining balance over time, so paying early saves money. A factor rate fixes the total cost upfront, so early repayment usually doesn't reduce what you owe. That's why a seemingly low factor rate can translate to a very high APR.
What's a typical factor rate? +
Most merchant cash advances fall between 1.1 and 1.5. The exact number depends on your revenue, time in business, industry, and risk profile.
Last updated: June 2026