Factor Rate vs Interest Rate for Business Financing
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A factor rate is a multiplier applied to the financed amount; an interest rate is applied to an outstanding balance over time. The two numbers do not share the same denominator or time basis.
Calculate fixed factor payback
fixed payback = amount financed × factor rate. Financing 50,000 at 1.20 creates 60,000 of payback before separate fees. The fixed charge is 10,000. The 0.20 markup is not automatically 20% APR.
Calculate amortizing interest
An amortizing loan posts periodic interest on the remaining principal. Each payment covers interest and principal, so the interest base generally declines. Nominal annual rate, compounding, payment frequency, term, and fees determine total dollars.
Why time changes the comparison
Repaying 60,000 over three months costs far more on an annualized cash-flow basis than repaying the same total over two years. Payment timing and fee timing are therefore essential to any factor-to-annual comparison.
Use an effective cash-flow rate carefully
The calculator solves the periodic internal rate from net cash at funding and the entered repayments, then compounds it at 12, 26, 52, or 260 periods per year. This is a consistent internal comparison—not a statutory APR disclosure.
Include fees in the cash-flow record
A factor may exclude origination, broker, documentation, wire, maintenance, or per-payment charges. A withheld fee lowers day-zero cash; a financed fee raises the obligation; a recurring fee increases each outflow. Excluding them understates cost.
Run both structures on one cash target
Enter one offer as amortizing interest and the other as factor-rate fixed payback in the Business Loan True Cost & Factor Rate Comparison Calculator. Keep the business cash target constant and copy the actual cadence rather than converting the printed factor with a shortcut formula.
Frequently asked questions
What does a 1.30 factor rate mean?
It means contractual payback of 1.30 times the financed amount before separate charges.
Can I convert a factor rate to APR by subtracting 1?
No. Subtracting 1 gives a markup relative to financed amount, not an annual rate that accounts for payment timing.
Does CalculatorGeek recommend a lender or funder?
No. The calculator and guides compare terms entered by the user. They do not rank providers, display live offers, collect applications, predict approval, or sell a lead.
Do the USD, GBP, CAD, and AUD modes apply local law?
No. They change currency formatting and context only. They do not insert disclosure rules, tax treatment, products, market rates, or eligibility criteria.
Sources and review status
- Federal Reserve — Small-business credit and merchant cash advances
- CFPB — Small-business lending rule FAQs
- CFPB — Regulation B merchant cash advance definition
- California DFPI — Commercial financing disclosures
- New York DFS — Commercial financing disclosure regulation
- BDC — Business loan calculator
- British Business Bank — Making business finance work for you
Sources and model boundaries were checked on 2026-10-08. CalculatorGeek Editorial Team reviewed and approved the full finance and insurance package on 2026-10-08. The cited organizations supplied source material; they did not review or endorse this CalculatorGeek package. Product terms, policy forms, laws, regulatory guidance and rates can change; current written documents and applicable authorities control.
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