How Factor Rates Work

A factor rate isn't an interest rate, and treating it like one is how people misjudge a deal. Here's the actual math, in plain dollars.

Fundangle · independent commercial-finance broker · updated July 2026

The one formula you need

A factor rate is just a multiplier. To get your total payback, multiply the amount you receive by the factor:

So if you receive $40,000 at a 1.28 factor:

That's the whole price, stated as dollars, before you look at any percentage. A quick shortcut: the digits after the "1." are roughly the total cost as a percent of the funded amount. A 1.28 factor is about 28% of the funded amount in total cost — here, 28% of $40,000 is $11,200. Common factors run from about 1.15 to 1.50.

Why it's not an interest rate

Interest accrues over time on a balance that shrinks as you repay. A factor cost is fixed up front and doesn't compound. Three consequences that surprise people:

• Time doesn't change the cost. $51,200 is $51,200 whether the term runs four months or ten (unless your contract has a prepay discount).
• A shorter term isn't cheaper — it's more intense. The same cost squeezed into fewer weeks means a bigger payment, not a smaller total.
• "1.30 factor" is not "30% APR." Because the money is repaid fast, that flat 30% cost can annualize into a triple-digit estimated APR. Same dollars, very different-looking percentage.

Turning it into a weekly payment

The total tells you the price. The payment tells you whether your cash flow can carry it — which is the number that actually keeps you up at night. Divide total payback by the number of weeks in the term:

Notice the top two rows: same total cost, very different weekly bite. A shorter term doesn't save you a dollar; it just demands more each week. When we quote you, we lead with this weekly number because it's the one your bank account feels.

Paying early: why it usually doesn't help

On a term loan, paying early saves interest. On most advances it doesn't — the payback is locked by the factor rate regardless of speed. Paying off early mainly frees your cash flow and lets you qualify for the next thing sooner; it rarely cuts the cost. Some funders do offer a prepayment discount (a reduced factor if you settle early). It's worth real money when it exists, so always ask before you sign, and get it in writing.

Factor rate vs. estimated APR

You'll sometimes see both. Hold them like this:

Some state disclosure laws now require an estimated APR on the formal offer; when that applies you'll see it labeled exactly as an estimate for comparison. It doesn't mean the advance charges interest — it doesn't.

Common questions

How do I calculate total payback from a factor rate?

Multiply the amount you receive by the factor. $40,000 × 1.28 = $51,200 total, with $11,200 being the cost of the money.

Is a 1.30 factor the same as 30% interest?

No. It's a flat 30% of the funded amount in total cost, fixed up front, not compounding interest on a shrinking balance. The two aren't interchangeable.

Does paying early save money?

Usually not — the total is fixed by the factor. It frees cash flow. Ask whether your contract has a prepayment discount; some do.

Why does the estimated APR look so high?

Fast repayment annualizes a reasonable dollar cost into a big percentage. Judge the deal on total dollars and the weekly payment, and use APR only to compare products.