What Is a Factor Rate — and Why It Hides the True Cost
When an MCA provider quotes you a factor rate of 1.35, it sounds reasonable — like a 35% fee. But factor rates aren't interest rates. A factor rate of 1.35 on a $50,000 advance means you repay $67,500 — that's $17,500 in fees.
If your repayment term is 6 months, your effective APR is closer to 70%. If it's 3 months, you're looking at 140% or higher. Factor rates compress what would be a shocking annual rate into a small-sounding decimal. That's by design.
What a factor rate actually means
Unlike an interest rate, a factor rate is a multiplier applied once to your advance amount. There's no compounding, no annualization — which makes it hard to compare to a bank loan or SBA product.
Converting factor rate to APR
Our free tool converts your factor rate into a true APR so you can see what you're actually paying — and compare it to other financing options on equal terms. Upload your contract to get your number in under 30 seconds.
How to compare offers
Always ask for the effective APR, not just the factor rate. If a lender won't provide it, that's a red flag. Use our APR calculator to model different advance amounts and terms before you sign.
Does Your Contract Have These Red Flags?
Upload it free — get your full analysis in under 30 seconds.
Related Articles
New York's $534M MCA Settlement: What It Means for Borrowers
A major MCA provider agreed to a landmark settlement over deceptive practices. We break down what happened and what it means for your rights.
Confession of Judgment: What It Is and Why It's Dangerous
A COJ lets a lender get a court judgment against you without notice or a hearing. New York banned enforcement against out-of-state borrowers — but many contracts still include it.
Why Stacking Multiple MCAs Is So Dangerous
Taking a second or third advance while repaying the first can push combined costs to 200–350% APR equivalent. Here's how to avoid the trap.
FundingWatch Research Team
Our team analyzes MCA contracts, regulatory actions, and borrower rights so small business owners have the facts they need to make informed decisions.