A 1.35 factor rate on $100,000 means you repay $135,000. The cost is $35,000, and it's fixed the day you sign: pay it back in eight months or pay it back in eight weeks, the $35,000 doesn't change. An APR is a different unit. It's a yearly cost charged on the balance you still owe, so the balance shrinks as you pay, the cost shrinks with it, and paying early saves real money. A factor rate is a multiplier on the principal. An APR is a speed on a declining balance. You can't compare 1.35 to a percentage any more than you can compare a gallon to a mile. The number that compares them is total dollars repaid over the term, and on a short term a factor-rate product costs several times what its headline suggests, because $35,000 to use $100,000 for eight months is a very different thing from $35,000 to use it for three years. Put the two offers side by side in total dollars, then in dollars per month against your cash flow, and the comparison makes itself. The loan cost calculator does the conversion on your own numbers.
Here's how it goes wrong. A landscaping company in Texas gets two offers on the same day for $100,000. One is a factor-rate advance, 1.35 over eight months. The other is a three-year term loan quoted as an APR. The owner picks the factor rate because 1.35 looks like a smaller number. He repays $135,000 in eight months, $16,875 a month through the slow season. The term loan would have cost less in total, a fraction of that per month, and would have gotten cheaper the day he paid ahead. He didn't read a rate wrong. He compared two different units.
the fixed cost of a 1.35 factor rate on $100,000, due in full whether the advance runs eight months or eight weeks
— Factor rate × principal = total repayment; the difference is the cost, set on day one and unaffected by early payoff
What a Factor Rate Is
A factor rate is a multiplier. Multiply the amount advanced by the factor and that's the total you repay. 1.20 on $50,000 is $60,000. 1.35 on $100,000 is $135,000. 1.45 on $250,000 is $362,500. The cost is baked into the repayment figure on day one, and it's usually collected as a fixed daily or weekly debit from the business account until the total is paid.
Three things follow from that, and they're the whole story:
Early payoff saves nothing. The cost is set when you sign. Pay the $135,000 in four months instead of eight and the lender keeps the same $35,000. Some lenders offer a discount for early payoff; it has to be in writing before you sign, and it's rarely the full amount.
The term is the cost. $35,000 to use $100,000 for eight months is a steep price. The same $35,000 over three years would be a different product. Factor-rate products are short by design, which is what makes the headline number look small and the real cost large.
The debit runs whether you have the revenue or not. Daily or weekly pulls don't flex with a slow month. A $16,875 monthly repayment on a business doing $80,000 a month in the off-season is a fifth of the deposits, every day, until it's done.
That's the structure behind merchant cash advances and most short-term "business funding" quoted as a factor. It isn't a trick, but it's priced for speed and risk, and it's presented in a unit that doesn't invite comparison.
Bottom line:
Factor rate times principal equals total repayment. The cost is fixed on day one, the term is short, and early payoff doesn't change the number. Convert it to dollars before you compare it to anything.
What an APR Is
An annual percentage rate is the yearly cost of borrowing, including fees, charged on the balance you still owe. Borrow $100,000 on a three-year term and each monthly payment is part interest on the remaining balance and part principal. As the balance drops, the interest drops. Pay ahead, and the balance drops faster, so the total cost drops too. The APR is the standard unit because it lets you compare two loans with different terms and fees on the same footing.
Term loans, lines of credit, and equipment financing are quoted this way. A revenue-based term loan funds in days on bank statements and amortizes on a one-to-five-year schedule. A working-capital line charges only on what's drawn, for as long as it's out. A line of credit revolves. None of them fixes the cost on day one.
The Conversion
You don't need a formula; you need the two offers in the same unit. Four numbers for each:
- Total repaid. Factor rate: principal × factor. APR product: sum of the scheduled payments (the lender's offer sheet has it; so does the calculator).
- Total cost. Total repaid minus the amount you received. On the factor-rate advance, remember the holdback or origination fee comes off the top, so the amount you actually receive is less than the principal and the cost is higher than it looks.
- Cost per month of use. Total cost divided by the number of months. This is where the factor-rate product shows its real price: a fixed cost crammed into a short term.
- Payment against cash flow. Monthly (or daily, annualized to monthly) repayment as a share of the business's average monthly deposits, in the worst month, not the best.
| 1.35 factor, 8 months | Term loan, 36 months | |
|---|---|---|
| Amount received | $100,000 (less any holdback) | $100,000 |
| Total repaid | $135,000 | Lower in total |
| Cost | $35,000, fixed | Declines as you pay |
| Per month of use | $4,375 | A fraction of that |
| Repayment per month | $16,875 | A fraction of that |
| Pay it off early | Saves nothing | Saves the remaining interest |
Run your own offer through the loan cost calculator and the right-hand column fills in with real numbers. The calculator is yours to drive; nothing on this page is a published rate.
What the Conversion Is Worth to the Business
On a $100,000 advance, the difference between the two columns is a crew's payroll for a season, or the deposit on the next job. More than the dollars, it's the shape: a fixed daily pull through the slow months versus a payment that falls as the balance falls. Operators who grow through a cash gap aren't the ones who found the smallest number on the offer sheet. They're the ones who priced both offers in dollars per month against their worst month and picked the one the business could carry.
Put your offer next to a revenue-based line in dollars.
Start Your Funding Request →When a Factor Rate Fits
It's not always the wrong tool, and a straight answer includes when it's right:
A contract that's worth more than the cost. $50,000 in 48 hours to mobilize on a $200,000 job you'd otherwise lose. The $12,000 to $15,000 of cost is small against the job, and the job repays it.
A very short gap with a known payoff date. A $30,000 advance to cover materials on an insurance-paid job that funds in 60 days. The cost is a few thousand dollars and the receivable retires it.
A file no amortizing lender will write this week. Under six months in business, thin statements, a credit event, and a real deadline. The factor-rate advance is the bridge, and the goal is to be off it in one cycle.
Outside those three, a revenue-based working-capital line or term loan on four months of bank statements costs less in total, costs less per month, and gets cheaper when you pay early. Contractors in Colorado and shops in the construction and auto repair trades send factor-rate offers to the desk every week asking if the number is good. The answer is always the same: convert it, then compare it to what the deposits qualify for.
Restaurant group, Bend, OR
Seasonal working capital
$260K
Pre-season working capital funded in 2 days on bank statements, repaid as the season's deposits landed, with the cost falling as the balance did instead of fixed on day one
See the full case →Here's What Most People Get Wrong
They compare the two numbers on the offer sheets as if they're the same unit. 1.35 looks smaller than a two-digit percentage, so they take it. Then the daily debit starts, the slow month arrives, and they find out the $35,000 doesn't shrink when they pay it faster. The fix isn't learning the formula. It's refusing to compare anything until both offers are in total dollars repaid, cost per month of use, and payment against the worst month's deposits. Once they're in the same unit, the cheaper one is obvious, and it's almost never the one quoted as a factor.
Compare the offers in dollars, not units
One application, one soft pull, four months of bank statements. We'll put your factor-rate offer next to what the deposits qualify for, in total dollars and dollars per month, and tell you straight if the advance is the right tool.
Frequently Asked Questions
What does a 1.35 factor rate cost on $100,000?
$35,000. Multiply the principal by the factor to get total repayment, $135,000, and the difference is the cost. It's fixed on the day you sign and doesn't change if you repay early. Over an eight-month term that's $4,375 per month of use, before any holdback or origination fee taken off the top.
What is a good factor rate for a business loan?
The factor by itself doesn't tell you. A 1.20 factor over three months and a 1.20 factor over twelve months are very different prices for the same dollars. Convert the offer to total repaid, cost per month of use, and payment against your slowest month's deposits, then compare it to a revenue-based term loan or working-capital line on the same amount.
Can you convert a factor rate to APR?
Yes. Take the total cost, divide by the amount you actually received, and annualize it over the repayment term. The shorter the term, the higher the result, which is why a factor-rate product's annualized cost is several times its headline number. The loan cost calculator runs the conversion on your own offer so you're comparing like to like.
Does paying off a factor-rate loan early save money?
Usually not. The cost is set at signing as a fixed total, so paying in four months instead of eight leaves the same cost. Some lenders offer an early-payoff discount; it has to be in the contract before you sign. An APR product is the opposite: paying early cuts the remaining interest.
When does a factor-rate advance make sense?
When the thing it funds is worth more than the cost and nothing cheaper funds in time: mobilizing on a job that would otherwise be lost, a short gap with a known payoff date, or a bridge for a file no amortizing lender will write this week. Outside those, a revenue-based working-capital line or term loan on bank statements costs less in total and per month.
How is a merchant cash advance different from a term loan?
An MCA is priced as a factor on the amount advanced and collected as a fixed daily or weekly debit over a short term, so the cost is set on day one. A term loan is priced as an APR on a declining balance over one to five years, with a monthly payment that includes principal, so the cost falls as you pay. Merchant cash advances on the lender network run $25K to $100K and are the last tool we reach for.
Bobby's Take
If a lender won't put the offer in total dollars repaid and dollars per month, that's your answer about the offer. I've watched operators sign a 1.4 and a 1.5 thinking they got a good number, then spend a slow season feeding a daily debit that doesn't care about the slow season. Your job isn't to learn the lender's units. It's to know what leaves the account, what leaves it every month, and whether the business can carry that in its worst month. Put every offer in those three numbers and the cheaper one stops hiding. If you've already got an offer in hand, the guide to reading a business loan offer walks every line of it.
