TL;DR: A factor rate is a decimal multiplier that sets the total dollar cost of financing upfront, written like 1.3. To convert it to an APR, find your total cost, divide by the amount, then annualize across your term length. See the worked $10,000 example below.
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What is a factor rate?
A factor rate is a decimal multiplier that tells you the total cost of financing before you accept it. You multiply the amount by the rate to get your full amount due over the life of the agreement. A 1.3 factor rate on $10,000 means $13,000 total. The cost is set once and doesn’t compound over time.
This makes a factor rate different from the rates you see on most loans. It’s a flat figure tied to the amount you take. The dollar cost won’t move as the balance shrinks.
How a factor rate is written and what it means per dollar
Factor rates are written as decimals, . Each unit above 1.0 represents the cost per dollar borrowed. A 1.25 rate means you pay 25 cents for every dollar of financing.
Multiply the amount by the rate, and you have your total. There’s no separate interest accrual to track month by month.
How do you calculate the total cost from a factor rate?
Multiply the financing amount by the factor rate to get total payback. Subtract the original amount to find the cost in dollars. A $10,000 advance at a 1.3 factor rate means $13,000 back and $3,000 in cost. The math is the same regardless of term length.
The dollar cost stays fixed whether you satisfy the balance in 3 months or 12. Term length changes the annualized cost, not the dollar cost.
Worked example: a $10,000 advance at a 1.3 factor rate
Here’s the full breakdown using the same hypothetical. These figures are a simulated illustration, not current pricing.
|
Financing amount
|
Factor rate
|
Total payback
|
Cost per dollar
|
|---|---|---|---|
|
$5,000
|
1.2
|
$6,000
|
$0.20
|
|
$10,000
|
1.3
|
$13,000
|
$0.30
|
|
$25,000
|
1.4
|
$35,000
|
$0.40
|
Factor rate vs interest rate vs APR: what’s the difference?
A factor rate is a flat multiplier set upfront. An interest rate is a percentage charged on a declining balance. An APR rolls interest plus certain fees into one annualized figure. The table below shows how each is expressed and where it usually applies.
|
Concept
|
How it’s expressed
|
Fees included
|
Annualized
|
Where it typically applies
|
|---|---|---|---|---|
|
Factor rate
|
Decimal multiplier (e.g., 1.3)
|
No
|
No
|
Merchant cash advances, some short-term financing
|
|
Interest rate
|
Percentage on balance
|
No
|
No
|
Term loans, lines of credit
|
|
APR
|
Annualized percentage
|
Often, depending on rules
|
Yes
|
Bank loans, SBA loans
|
People often say only APR includes fees, but APR disclosure rules vary by product and jurisdiction. , although some state commercial financing disclosure laws require APR or APR-like cost disclosures for certain products, including sales-based financing.
How do you convert a factor rate to an APR?
Start with your dollar cost, then express it as a rate over your term. Divide the cost by the amount to get the cost percentage. Divide that by the number of days in your term, then multiply by 365 to annualize. A shorter term spreads the same cost over less time, so the equivalent APR rises.
Walk through the $10,000 example above. The cost is $3,000, or 30 percent of the amount. Spread over 12 months, that’s roughly a 60 percent equivalent APR once you account for the declining balance. Over 3 months, the same $3,000 annualizes far higher.
Why the same factor rate costs more annualized over a shorter term
A factor rate locks the dollar cost in place. The term length decides how that cost looks on an annual basis. Pay it back faster, and you’re carrying the same cost over fewer days, which pushes the annualized figure up.
The table below shows examples of how different timeframes affect factor rate.
|
Term length
|
Factor rate
|
Equivalent annualized cost
|
|---|---|---|
|
3 months
|
1.3
|
~115%
|
|
6 months
|
1.3
|
~92%
|
|
12 months
|
1.3
|
~60%
|
This is why annualized cost matters when you compare offers. Median product tables vary by credit profile, cash flow, and revenue.
For current rate context, reports that average small-business bank loan interest rates ranged from 6.8% to 11% in Q4 2025, while online term loans commonly range from 14% to 99% APR.
Which Credibly products use factor rates, and which use interest rates?
Credibly’s working capital loan and merchant cash advance are priced with a factor rate.¹ Partner lines of credit, equipment financing, long-term loans, and SBA loans are priced with interest rates that vary by provider.² The table below maps each product to its pricing method.
|
Product
|
Pricing method
|
|---|---|
|
Working capital loan
|
Factor rate
|
|
Merchant cash advance
|
Factor rate
|
|
Equipment financing
|
Interest rate
|
|
Business line of credit
|
Interest rate
|
|
Long-term loan
|
Interest rate
|
|
SBA loan
|
Interest rate
|
For SBA pricing context, the ties 7(a) interest rates to a base rate plus an allowable lender spread. Maximum rates are set by program rules.
Online lenders run higher. publishes rate-context tables that help you place each product side by side.
How does paying off early affect a factor-rate balance?
A factor rate is fixed to the total purchased amount. It doesn’t shrink just because you satisfy the balance ahead of schedule, unless a specific early payoff or prepayment benefit applies.
Paying early can free up cash flow, but it usually won’t reduce the dollar cost on its own. The table shows how three scenarios compare.
|
Scenario
|
Effective cost outcome
|
|---|---|
|
Pay off early
|
Same total cost unless an early payoff benefit applies; higher annualized rate
|
|
Pay on schedule
|
Cost matches the agreed factor rate
|
|
Pay late
|
Possible fees; obligation remains until satisfied
|
What should you ask before accepting a factor-rate offer?
Run through these questions with any provider before you accept.
- The total payback in dollars, so you know the real number
- The factor rate itself, written as a decimal
- Every fee, including origination, underwriting, and any prepayment charge
- The remittance or payment frequency, daily, weekly, or monthly
- The term length and how it affects your annualized cost
- Any early payoff terms or prepayment benefits
Financing providers may vary in their credit inquiry practices. Confirm the specific inquiry type with your provider before applying. A clear answer on each of these tells you what the financing really costs.
How factor-rate financing fits your total cost of capital
Total cost of capital is the full price of financing across every fee and the full term, not just the headline rate. A factor rate gives you a fixed dollar cost, which makes budgeting straightforward.
Compare offers on the dollar amount and the annualized cost together. A worked conversion, like the example above, turns a factor rate into a number you can line up against an APR.
If you’re earlier in the process, our guide on covers the steps before cost. Our guide on does as well.
Because every lender has a different approach, it helps to understand how Credibly specifically structures these financing options to see if they align with your business needs.
How factor-rate pricing works with Credibly
Credibly reviews your bank statements to see how money actually moves through your account. Deposit history carries weight in that review, alongside your credit profile and other factors. Owners with steady revenue and a thinner credit file can still qualify when the cash flow tells the stronger story.
The factor rate you’re offered comes out of that review. Because the cost is set upfront and doesn’t compound, you see your total payback before you commit.³ A working capital loan fits a defined expense with a fixed payment and a firm end date. A merchant cash advance fits owners whose revenue moves in cycles, since it’s sized from real reported deposits at approval.
Frequently asked questions
Is a factor rate the same as an APR?
No. A factor rate is a flat multiplier that fixes your dollar cost upfront, while an APR is an annualized percentage that accounts for the term.
The same factor rate produces different APRs depending on the repayment timeframe. Use the conversion method provided above to compare these rates side-by-side.
What does a 1.3 factor rate mean in dollars?
A 1.3 factor rate means you pay $1.30 back for every dollar borrowed. For example, a $20,000 advance would result in a total payback of $26,000.
Why is a factor rate not expressed as a percentage?
A factor rate describes a fixed total cost rather than a charge on a declining balance. Using a decimal multiplier makes it easy to calculate your total obligation with one simple multiplication.
Do merchant cash advances use factor rates?
Yes. Merchant cash advances use factor rates set at approval to provide upfront clarity on the total remittance amount.
Can you lower the cost of a factor-rate advance by satisfying it early?
Generally no, because the factor rate is fixed to the total purchased amount. Check your specific agreement for any potential early satisfaction or prepayment benefits.
Which is cheaper, a factor rate or an interest rate?
It depends on your term length and any associated fees. Convert both offers to an annualized figure to determine which option is more cost-effective for your situation.
See your financing options
Want to know what your financing would actually cost? Run the numbers with our , then check your eligibility to see real terms. You can or read our for the full picture.
¹ Factor rates as low as 1.11.
² Some products are made available through Credibly’s network of external funding partners. Partner product thresholds are set by the funding partner and apply to those products specifically.
³ Financing terms are based on a good-faith estimate and assume consistent monthly revenue. Actual time to satisfy the obligation may vary.
Credibly merchant cash advances and working capital loans to merchants in California are provided by Retail Capital LLC. All other Credibly products in all other jurisdictions are provided by Credibly of Arizona LLC.
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