Glossary

Factor rate

A multiplier applied to an advance to set the total payback.

A factor rate is a decimal multiplier, such as 1.25, applied to the amount advanced to determine the total you repay. It is the pricing convention for merchant cash advances and many short-term "working capital" products. Unlike an interest rate, a factor rate has no time dimension: 1.25 costs the same $5,000 on $20,000 whether you repay in ten weeks or forty, which is why a short term produces a very high annualized cost.

How it appears in a contract

Often labeled "factor rate", "buy rate", or simply shown as a purchased amount next to a purchase price ("Purchase price: $20,000. Purchased amount: $25,000"). Fees may be applied before or after the factor; the agreement should say which.

Worked example

$20,000 × 1.25 = $25,000 payback. With a 2% fee deducted, you receive $19,600. Over 26 weekly payments of $962, the estimated nominal APR is about 98%. Run your own numbers.

Illustrative figures on stated assumptions; not quotes.

What to ask

• Is the factor applied to the amount before or after fees?
• What is the estimated APR on the offer’s own term assumptions?
• Is there a written early-payoff discount schedule?

Related terms

Total payback · Origination fee · APR (annual percentage rate) · Early payoff discount · all terms