What Is a Factor Rate—and How Does It Impact Total Repayment?
No fluff. A factor rate is a multiplier that sets the total dollars you must repay on an MCA. Understand it, model it, and avoid costly surprises.
Quick Definition
Factor Rate (e.g., 1.25, 1.35, 1.45) is a multiplier used to compute how much you’ll repay on a Merchant Cash Advance (MCA).
Example: If you’re advanced $50,000 at a 1.35 factor, you must repay $67,500 (excluding any fees).
How Repayment Works
With an MCA, you don’t make fixed payments. Instead, the provider collects a holdback (a fixed % of daily card sales) until the total repayment is satisfied.
- Holdback %: Commonly 10–20% of daily card sales
- Term: Variable—faster if sales are strong; longer if sales dip
- APR? MCAs don’t quote APR. The true cost can be much higher than a loan APR once you annualize it.
Factor Rate Examples (Same Advance, Different Factors)
Assume a $50,000 advance, no fees, for illustration.
| Advance | Factor Rate | Total Repayment | Implied Cost (%) |
|---|---|---|---|
| $50,000 | 1.25 | $62,500 | 25% |
| $50,000 | 1.35 | $67,500 | 35% |
| $50,000 | 1.45 | $72,500 | 45% |
Note: “Implied Cost” here is (Total Repayment – Advance) ÷ Advance. It’s not APR.
MCA Factor Rate Calculator (Simple Estimator)
Estimates your total payback and a rough, non-APR annualized figure. For decisioning, compare against fixed-payment loans too.
Results
Total Repayment: $67,500
Estimated Days to Payoff: 113 days (varies with sales)
Implied Cost (% of Advance): 35%
Rough annualization assumes average outstanding ≈ 50% of advance and level daily remittances. Not an APR.
Factor Rate vs. APR (Why They’re Not the Same)
- Factor rate sets total dollars repaid. It ignores time.
- APR annualizes cost over time with amortization. MCAs repay from daily sales and don’t amortize like loans.
- Shorter payback = higher annualized cost. If you repay in ~4 months, the annualized rate can be very high even at “1.35.”
Bottom line: Compare MCAs to fixed-payment loans/lines—don’t just look at the factor rate.
Smart Guardrails
- Avoid stacking multiple MCAs—daily/weekly remittances can crush cash flow.
- Know the total dollars you’ll repay, not just the factor.
- Ask about fees, holdback %, and any reconciliation options for slow months.
- Run a payback plan at your low seasonal revenue, not your peak.
Ready to Compare?
Information on this page is for educational purposes and not financial, legal, or tax advice.