What Is a Factor Rate?
A factor rate is the pricing mechanism used for merchant cash advances (MCAs). Unlike a traditional loan — which charges interest as a percentage over time — a factor rate is a simple decimal multiplier applied to the total amount you receive.
Formula: Total Repayment = Advance Amount × Factor Rate
For example, if you receive a $5,000 advance with a factor rate of 1.3:
$5,000 × 1.3 = $6,500
You repay $6,500 total — the $5,000 advance plus $1,500 in fees.
Factor Rate vs. Interest Rate: What’s the Difference?
| Factor Rate (MCA) | Interest Rate (Loan) | |
|---|---|---|
| How it works | Flat multiplier on the advance | Percentage charged over time |
| Affected by repayment speed? | No — cost is fixed at origination | Yes — faster payoff = less interest |
| Credit check required? | No | Usually yes |
| Collateral required? | No (at Fundo) | Often yes |
| Best for | Fast, short-term capital needs | Large, long-term financing |
With a factor rate, your cost is locked in from day one. You always know exactly what you will repay.
Typical Factor Rate Ranges
Factor rates typically fall between 1.1 and 1.5, depending on your monthly revenue, time in business, industry type, and overall business health. A factor rate of 1.1 means you repay 10 cents for every dollar advanced. A rate of 1.5 means you repay 50 cents per dollar.
How Fundo Calculates Your Advance Cost
At Fundo, your advance cost is determined by your factor rate — not your credit score. We look at your average monthly revenue (minimum $1,500/month), your bank account activity, and your time in business (minimum 3 months). No hidden fees. No personal guarantee. No prepayment penalty. Early repayment discounts are available.
Factor Rate Example: Gig Worker Scenario
| Advance Amount | Factor Rate | Total Repayment | Daily Debit (est. 6 months) |
|---|---|---|---|
| $2,000 | 1.25 | $2,500 | ~$13.89/day |
| $5,000 | 1.30 | $6,500 | ~$36.11/day |
| $10,000 | 1.35 | $13,500 | ~$75.00/day |
Why MCAs Use Factor Rates Instead of APR
Traditional APR assumes a loan that runs a full year. MCAs are designed to be short-term — often 3 to 9 months — repaid through daily debits tied to your cash flow. Expressing a 6-month MCA as an annual rate would overstate its cost. Factor rates give a cleaner, more honest picture of what you actually pay.
Frequently Asked Questions
Is a lower factor rate always better?
Yes — all else being equal, a lower factor rate means lower total cost. But also consider the advance amount, repayment term, and daily debit size relative to your cash flow.
Does repaying faster reduce my factor rate cost?
No — the total repayment amount is fixed at origination. However, Fundo offers early payoff discounts.
Is a merchant cash advance the right choice for my business?
MCAs are best for short-term working capital needs. If you need large, long-term financing, a traditional loan may be a better fit.
Apply now — get a decision in minutes with no credit check and no personal guarantee required. Call (866) EZ-FUNDO. Not available in CA or NY.
Related reading: Merchant Cash Advance vs. Business Loan: Which Is Right for Gig Workers?
