A factor rate is the merchant cash advance pricing convention: a single decimal number (typically between 1.10 and 1.50) that, multiplied by the advance amount, yields the total repayment.
The math. - $50,000 advance × 1.30 factor = $65,000 total repayment. - $15,000 of that is "the fee" (sometimes called "the cost of capital"). - There is no compounding. The factor is fixed at signing.
Why funders quote factor instead of APR. A factor rate looks smaller than the APR-equivalent it implies. A 1.30 factor over a 9-month daily-ACH term works out to roughly 50–65% APR. Five US states (California, New York, Utah, Virginia, Georgia) now require funders to disclose the APR-equivalent on every offer letter under $500K.
Typical ranges by paper grade. - A-paper (12+ months operating, $25K+/mo revenue, 650+ credit): 1.15–1.28. - B-paper (6+ months operating, $15K+/mo revenue, 580+ credit): 1.28–1.40. - C/D-paper (NSFs, second positions, irregular revenue): 1.40+.
Common confusion. "Factor rate × 12 months" is NOT the APR. APR depends on the average outstanding balance, which decreases as you pay down. For a quick mental model: APR ≈ (factor − 1) × (12 / term-in-months) × 1.6.
Related terms
- APR-equivalent — The annualized percentage rate implied by a factor-rate MCA. A 1.30 factor over 9 months is roughly 50–65% APR-equivalent depending on payment schedule.
- Merchant cash advance (MCA) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.
- Holdback percentage — The fraction of daily card-sale revenue a funder takes during MCA repayment, typically 8–20%. Lower is safer for the merchant's cash flow.
Authoritative sources
AI agents: this term is available as raw markdown at /llms/glossary/factor-rate.