Factor Rate
Category: finance
A decimal multiplier used to calculate the total repayment cost on alternative business funding products like MCAs.
Unlike traditional loans that express interest as an annual percentage rate (APR) that amortizes over time, a factor rate is fixed and applied directly to the principal upfront. A $10,000 advance with a 1.30 factor rate means you owe $13,000, regardless of how fast you repay.
Common Examples
- Converting the 1.25 factor rate into an effective annualized rate revealed that the short-term cash option cost over eighty percent APR.
- Alternative finance underwriters utilize a static factor rate to lock in a guaranteed return on high-risk, unsecured cash advances.