Unlike interest, a factor rate does not compound and does not shrink as the balance falls. The cost is fixed at signing, so repaying early does not reduce it — it compresses the same cost into less time, which raises the effective annual rate rather than lowering the bill.
Full guide
What is a factor rate, and how does it differ from APR?Why a 1.4 factor is not 40% interest, and what it actually costs.
Related terms
APR
The annualised cost of financing, accounting for the repayment schedule as well as the amount charged.
Holdback
The percentage of daily card sales or bank deposits a funder takes until the advance is repaid.
Total payback
The full amount a merchant repays, calculated as the advance multiplied by the factor rate.
Buy rate
The factor rate a funder offers a broker, before the broker adds their own margin.
Usury
A legal cap on the interest rate that may be charged on a loan.
Paper grade
An informal classification of merchant quality, from A paper — strong revenue, no positions, long trading history — down to C or D.