A factor rate is a multiplier applied once to the advance amount to give the total repayment. A $50,000 advance at 1.40 means $70,000 is repaid — a $20,000 cost, full stop. It is not an interest rate, because it does not compound and does not shrink as the balance falls. The same deal expressed as APR is far higher than the factor implies, and the shorter the term, the wider that gap.
Factor rates confuse people because they look like interest rates and behave nothing like them. A merchant seeing 1.4 next to a bank quoting 12% will assume the first is better, and a broker who does not head that off spends the call correcting it.
Multiply the advance by the factor. That is the total repayment. There is no amortisation, no declining balance and no early-repayment saving unless the contract specifically provides one.
| Advance | Factor | Total repaid | Cost |
|---|---|---|---|
| $25,000 | 1.25 | $31,250 | $6,250 |
| $50,000 | 1.35 | $67,500 | $17,500 |
| $50,000 | 1.45 | $72,500 | $22,500 |
| $100,000 | 1.30 | $130,000 | $30,000 |
The cost is fixed the moment the deal is signed. Repaying faster does not reduce it — it concentrates the same cost into less time, which raises the effective rate rather than lowering the bill.
APR annualises the cost and accounts for the fact that the merchant repays continuously rather than at the end. Because the balance falls throughout, the merchant has use of less money over time than the headline suggests, and a short term compresses the whole cost into a small window.
Illustrative, and the exact figure depends on the repayment mechanics. The shape is the point: the factor did not change, only the term did, and the effective cost more than tripled.
Directional illustration, not a quote for any product.
Both are real and they answer different questions. The factor tells them what they will pay in total. The APR tells them what the money costs relative to other financing. A merchant comparing an advance to a bank line needs the second number, and increasingly the law agrees — several state disclosure regimes require a rate expressed in comparable terms.
A multiplier applied once to the advance amount to give total repayment. A $50,000 advance at a 1.40 factor means $70,000 repaid — a fixed $20,000 cost. Unlike interest it does not compound and does not fall as the balance is repaid.
There is no single multiplier, because APR depends on the repayment term and mechanics as well as the factor. The same 1.35 factor can be roughly 46% APR over eighteen months or around 145% over six. Shorter terms produce dramatically higher effective rates from an identical factor.
Usually not, unless the contract specifically provides a discount for it. The cost is fixed at signing, so early repayment compresses the same total into a shorter period — which raises the effective annual rate rather than reducing what is owed.
Because an advance is legally a purchase of future receivables rather than a loan, and a purchase has a price rather than an interest rate. That distinction is also what keeps advances outside usury caps, and it is precisely the structural point regulators have been probing.
Time in business, revenue consistency, how many positions are already open ahead of yours, industry risk, and term. Existing positions move it most — each open advance raises the price of the next one.
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