Understanding Your Offer
How business funding works
What is a factor rate?
A factor rate is a decimal number (like 1.25) that tells you the total cost of funding. Multiply it by your advance amount and you get your total payback. If you receive $50,000 at a 1.30 factor rate, you pay back $65,000. The cost is fixed from day one. No compounding, no surprises.
Factor rates typically range from 1.10 to 1.50 depending on your revenue, credit profile, and repayment term. Lower rates go to stronger businesses with consistent deposits and clean banking history.
Factor rate vs. APR
APR spreads the cost of borrowing over a full year. Factor rates don't. A 1.30 factor rate on a 6-month advance works out to a much higher APR than a 1.30 rate on a 12-month term. Shorter terms mean higher APR even when the total cost is lower.
Banks quote APR because their loans run for years. Business funding uses factor rates because terms are shorter and the math is simpler. When comparing offers, look at the total payback amount and the daily or weekly payment, not just the rate.
How to compare funding offers
Three numbers matter: total payback amount, daily or weekly payment, and term length. A lower factor rate with a shorter term can cost more per day than a slightly higher rate spread over more months. Run the math on what your business can handle per payment cycle.
Also check for origination fees, early payoff discounts, and whether the payments are fixed or percentage-based. Fixed daily payments (ACH) stay the same regardless of sales. Percentage-based holdbacks flex with your revenue. Each has trade-offs depending on how consistent your cash flow is.