Factor rates explained: how to read an MCA offer

A factor rate is a multiplier, usually between about 1.1 and 1.5, that tells you how much you'll repay for each dollar you receive. Multiply it by the funding amount to get the total repayment.

The formula

Total repayment = funding amount × factor rate

Cost of funding = total repayment − funding amount

On a $40,000 advance at a 1.30 factor, you repay $52,000. The cost is $12,000.

Why the same factor rate can cost more or less

The factor rate fixes the dollars. The payback period decides how expensive those dollars are on an annual basis. The faster you repay, the higher the effective annual rate.

$50,000 at a 1.35 factor	Repaid over 6 months	Repaid over 12 months
Total repayment	$67,500	$67,500
Daily payment (business days)	about $536	about $268
Estimated APR	about 126%	about 63%

Illustrative estimates. Actual figures depend on the offer and payment schedule.

Fees that change the math

• Origination or underwriting fees are often deducted from the amount you receive. A $50,000 advance with a $1,500 fee puts $48,500 in your account, but you still repay on $50,000.
• ACH or bank fees can be charged per payment.
• Early payoff discounts can lower the total if you pay ahead. Ask whether one exists and get the terms in writing.

How to compare two offers

1. Write down the net amount you'll actually receive after fees.
2. Write down the total repayment.
3. Write down the payment amount and frequency, and check it against your slowest month.
4. Compare the estimated APR if the offer includes one; many states now require it.

The cheapest offer isn't always the one with the lowest factor. It's the one with the lowest total cost for a payment you can comfortably carry. Use our offer checklist to compare line by line.