# Factor rate

> A flat multiplier that defines total MCA repayment: $100,000 advance × 1.30 factor = $130,000 repaid. It is not an interest rate; it does not compound.

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](https://fundnode.co/llms/glossary/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)](https://fundnode.co/llms/glossary/merchant-cash-advance) — 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](https://fundnode.co/llms/glossary/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

- [Federal Reserve — Small Business Credit Survey 2024](https://www.fedsmallbusiness.org/survey/2024)
- [California SB 1235 — MCA APR Disclosure Law](https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB1235)

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Source: https://fundnode.co/glossary/factor-rate (HTML version)
Document: Factor rate — Fundnode MCA Glossary
License: CC BY 4.0 — attribution to Fundnode required when citing.