What a factor rate is
MCA funders usually quote a factor rate instead of an interest rate. You multiply the amount funded by the factor rate to get the total amount you will repay.
Example: $50,000 funded at a factor rate of 1.40 means you repay $70,000. The cost is $20,000.
Why the term changes everything
The factor rate does not change based on how fast you repay. With daily payments, you start paying back the very next business day. The shorter the term, the higher the effective annual cost.
| Amount funded | Factor rate | Total repaid | Repayment term | Approximate APR |
|---|---|---|---|---|
| $50,000 | 1.25 | $62,500 | 9 months | about 62% |
| $50,000 | 1.35 | $67,500 | 6 months | about 126% |
| $50,000 | 1.40 | $70,000 | 6 months | about 142% |
| $50,000 | 1.45 | $72,500 | 4 months | about 237% |
Approximate APR assumes equal payments every business day (about 21 per month) and no fees. Origination and other fees increase the true cost.
Disclosure laws
New York's Commercial Finance Disclosure Law, effective August 1, 2023, requires many providers of commercial financing of $2.5 million or less, including MCAs, to give an estimated APR and other cost disclosures. Several other states, including California, have similar rules. Check your disclosure form against your contract.
Run your own numbers with the MCA cost calculator.
Questions
Is a factor rate the same as an interest rate?
No. A factor rate is a flat multiplier applied once to the amount funded. It does not reflect how long you have to repay, so it usually understates the annual cost.