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Factor rate
Also called buy rate, cost multiplier, purchase rate.
A multiplier applied to the funded amount that fixes the total dollars to be remitted. It is a price, not a rate, it does not accrue over time, and it does not shrink if you repay faster.
Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.
What it means
Multiply the funded amount by the factor rate and you have the whole obligation. $50,000 at 1.35 means $67,500 must be delivered back, however long that takes. The $17,500 difference is the entire cost, fixed at the moment of signing. Nothing about it accrues, amortizes, or unwinds.
Why it is not an interest rate
Interest is a rate per unit of time applied to an outstanding balance. Pay a loan down and there is less balance to charge against; pay it off and interest stops. A factor rate has no time dimension at all. It is applied once, to the original funded amount, and the only thing time changes is how long you have to hand the total over.
That is why the two numbers cannot sit side by side on a comparison sheet. A factor rate of 1.30 is not 30% interest. Depending on how quickly the money is collected, the same 1.30 can annualize to well under 100% or to several times that.
Early repayment usually saves nothing
Because the total is fixed, retiring the balance in month three rather than month nine leaves the same dollars owed. You buy back the use of the money, not the cost of it, and in annualized terms you have made the deal more expensive rather than less. The exceptions are narrow and both must be in writing: an early payoff discount in the agreement itself, or a reduction the funder agrees to when you ask for the payoff figure. Neither is standard and neither is implied.
Comparing it to an APR requires an assumption
Three inputs convert a factor rate into an annualized cost: the funded amount, the total to remit, and how long collection actually takes. The third is the one nobody knows at signing, because remittance ends when the total is delivered and that date moves with sales, reconciliations and returned debits. Two consequences fall out of the arithmetic, both counterintuitive:
- A shorter collection period at the same factor rate costs more, not less. Same price, less time with the money.
- The annualized figure runs far above the headline. A daily or weekly remittance is paying the balance down throughout, so the average sum you actually have use of is roughly half the funded amount. That puts the annualized rate near double the naive calculation of cost divided by funded amount divided by years.
Where you meet it
Merchant cash advances, most short-term working capital sold through ISOs, and some revenue-based financing. Anything quoted as "1.2" or "1.49", or as "buy rate plus points", is priced this way. Loans quote a rate and a term. Advances quote a multiplier and a daily number, and the term is left as an inference.
Where this one catches people
Almost everyone reads a factor rate as an interest rate the first time they see one, and the misreading always runs in the funder's favor. 1.40 sounds like 40% a year to someone whose only reference point is an APR. It is 40% of the funded amount, charged over a period usually measured in months, which annualizes to a multiple of what it appears to be. The second half of the trap is the escape route people assume exists: paying it off early does not undo any of it. A broker saying "take the money and pay it back fast, it's cheap" is describing a loan, and this is not one.
Worked through
$50,000 funded at a 1.40 factor rate. Total to remit: $70,000. Cost: $20,000, fixed at signing.
Collected at $583.33 per banking day, that clears in 120 payments, roughly five and a half calendar months. Those cash flows imply an annualized rate near 149%.
The same $50,000 at the same 1.40, collected at $291.67 per banking day over 240 payments, still costs exactly $20,000 and annualizes near 75%. Identical price tag, half the annualized rate, purely because the business had the money twice as long.
Now pay the first version off on day 40. Around $23,333 has been delivered and the remaining $46,667 is due in full unless a discount is written into the agreement. The $20,000 cost has not moved. It has simply been compressed into eight weeks. On those cash flows — 40 debits of $583.33 and a $46,667 balloon on day 40 — the annualized rate rises from about 149% to about 260%, so the business paid close to twice the rate it would have paid by letting the deal run. Compressing a fixed cost into a balloon payoff does not raise the annualized rate in proportion to the time saved, because most of the money is still outstanding when the balloon is paid.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Sources and checks
Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.
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1.40 factor on $50,000 gives $70,000 to remit and a $20,000 fixed cost; $583.33 over 120 banking days annualizes near 149%
example1.40 x 50,000 = 70,000; 70,000 - 50,000 = 20,000. 583.33 x 120 = 69,999.60. Solving 50,000 = 583.33 x (1-(1+i)^-120)/i gives i = 0.5923% per banking day; x 252 banking days = 149.27% nominal annual (EAR 342.9%). 120 banking days = 24 weeks = 5.5 calendar months.
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the same $70,000 over 240 banking days at $291.67 annualizes near 75%
example291.67 x 240 = 70,000.80. Solving 50,000 = 291.67 x (1-(1+i)^-240)/i gives i = 0.2971% per banking day; x 252 = 74.88% nominal annual. Cost unchanged at 20,000.
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CORRECTED: a day-40 payoff of the 120-day deal does NOT roughly triple the annualized rate; it raises it by a factor of about 1.74
example40 x 583.33 = 23,333.20 delivered; 70,000 - 23,333.20 = 46,666.80 balloon. IRR of [-50,000; 39 x 583.33; 583.33 + 46,666.80] = 1.0312% per banking day; x 252 = 259.85% nominal annual. 259.85 / 149.27 = 1.74, i.e. roughly double, not triple. ('Triples' is only true on a compounded EAR basis, 342.9% -> 1226.6%, which is not the basis the entry's own 149% and 75% figures use, so the entry was mixing bases.)
Factor rate — common questions
What does factor rate mean?
A multiplier applied to the funded amount that fixes the total dollars to be remitted. It is a price, not a rate, it does not accrue over time, and it does not shrink if you repay faster.
Where does factor rate catch people out?
Almost everyone reads a factor rate as an interest rate the first time they see one, and the misreading always runs in the funder's favor. 1.40 sounds like 40% a year to someone whose only reference point is an APR. It is 40% of the funded amount, charged over a period usually measured in months, which annualizes to a multiple of what it appears to be. The second half of the trap is the escape route people assume exists: paying it off early does not undo any of it. A broker saying "take the money and pay it back fast, it's cheap" is describing a loan, and this is not one.
Is factor rate the same as an interest rate?
No. It is a multiplier applied once to the amount funded, with no time dimension. An interest rate is charged per unit of time on a balance that changes.
Which products does factor rate apply to?
Merchant Cash Advance, Working Capital, Revenue-Based Financing.
Is there a worked example of factor rate?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside factor rate?
Buy rate, Daily remittance, Double dipping, Early payoff discount, Effective APR.
Has this definition been checked?
Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.