Updated · By the Swiftline Funding team
If you’re comparing merchant cash advance offers, the factor rate is the single most important number to understand. It tells you exactly how much you’ll pay back — but it works very differently from an interest rate.
What is a factor rate?
A factor rate is a decimal multiplier, usually between 1.10 and 1.50, that determines the total amount you’ll repay on a merchant cash advance.
Total payback = Advance amount × Factor rate
| Advance | Factor rate | Total payback | Cost |
|---|---|---|---|
| $10,000 | 1.20 | $12,000 | $2,000 |
| $25,000 | 1.30 | $32,500 | $7,500 |
| $50,000 | 1.35 | $67,500 | $17,500 |
| $100,000 | 1.25 | $125,000 | $25,000 |
Factor rate vs. interest rate
An interest rate charges you based on the balance you still owe, over time. If you pay a loan down, the interest you owe shrinks.
A factor rate is applied once, to the full advance, when the deal is made. The cost is fixed no matter how quickly or slowly you pay (unless your agreement includes an early-payoff discount). That’s why a 1.3 factor rate is not the same as 30% interest.
How to calculate your daily or weekly payment
- Calculate total payback: advance × factor rate.
- Estimate the number of payments: about 21 business days per month for daily payments, or about 4.33 weeks per month for weekly payments.
- Divide total payback by the number of payments.
Example: $40,000 at 1.3 over 6 months with daily payments:
- Total payback: $40,000 × 1.3 = $52,000
- Payments: 6 × 21 = 126
- Daily payment: $52,000 ÷ 126 ≈ $413
Use our MCA calculator to run these numbers instantly.
Once you know your total payback, the next question is how it is collected. See our guide to the MCA holdback.
Converting a factor rate to APR
Because payments start right away and terms are short, the annualized cost (APR) of a merchant cash advance is much higher than the factor rate suggests. A 1.3 factor rate repaid over 6 months can equal an APR above 90%. Over 12 months, the same factor rate produces a much lower APR.
Several states — including New York and California — now require funders to disclose an estimated APR for commercial financing offers so you can compare options.
What determines your factor rate?
- Monthly revenue and consistency — steady deposits lower your risk profile
- Time in business — longer track records get better pricing
- Industry — some industries are considered higher risk
- Credit score — still a factor, even if not the main one
- Existing advances — more open positions usually mean higher rates
- Bank account health — overdrafts and negative days increase pricing
How to get a lower factor rate
- Apply with complete, clean bank statements
- Request an amount that fits your revenue
- Pay down existing advances first when possible
- Build a positive payment history — renewals often come with better pricing
- Ask about early payoff discounts
Is a merchant cash advance worth the cost?
It depends on what the money does for your business. If a $30,000 advance costing $9,000 lets you complete a job worth $50,000 in profit, it’s a smart move. If it only covers ongoing losses, it can make things worse. Apply to get matched with a funding specialist, and always ask for the full cost of every offer before you decide.