Shop for business funding and you'll meet two very different ways to price it: factor rates and interest rates. Knowing the difference is key to making the right call.
Here's how each works, how to calculate your real cost, and how to compare them fairly.
What is an Interest Rate?
An interest rate is a percentage of your outstanding loan balance, charged over time. The longer you take to repay, the more interest you pay. It's usually expressed as an annual percentage rate (APR).
For example, a $100,000 loan at 25% APR over 12 months costs about $13,700 in interest. Over 24 months, it costs about $28,000. Time is the key variable: the longer the term, the higher the total cost.
What is a Factor Rate?
A factor rate is a fixed multiplier set on your funding amount when the deal is made. It doesn't change. Your total repayment is set on day one and stays the same however fast or slow you repay.
Factor rates are written as decimals, typically about 1.15 to 1.50 for merchant cash advances. The formula is simple: Funding Amount × Factor Rate = Total Repayment.
Factor Rate Calculation Examples
$50,000 at 1.20 = $60,000 total repayment ($10,000 cost). $50,000 at 1.28 = $64,000 ($14,000 cost). $50,000 at 1.35 = $67,500 ($17,500 cost).
$100,000 at 1.20 = $120,000 ($20,000 cost). $100,000 at 1.28 = $128,000 ($28,000 cost). $100,000 at 1.35 = $135,000 ($35,000 cost).
$250,000 at 1.20 = $300,000 ($50,000 cost). $250,000 at 1.28 = $320,000 ($70,000 cost). $250,000 at 1.35 = $337,500 ($87,500 cost).
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Apply NowHow to Compare Factor Rates to APR
Comparing a factor rate to an APR isn't simple, because a factor rate is fixed and an interest rate depends on time. You can still work out a rough APR equivalent to compare.
A $100,000 MCA at 1.28, repaid over 12 months, costs $28,000. As an APR, that's about 56%, far higher than a typical bank loan.
One caveat: MCA funding approves businesses banks often decline, typically funds the same day instead of in 60 days, and needs no collateral. The higher cost pays for that speed, access, and flexibility.
What Determines Your Factor Rate?
At Lenifi, your factor rate depends on the overall strength of your business: monthly revenue, deposit consistency, average daily balance, personal credit score, time in business, and any existing business debt. Stronger profiles get lower factor rates.
The best way to know your actual cost is to get a real offer from Lenifi. A specialist walks you through every number before you decide anything. Apply in 2 minutes, with no impact on your credit.
About the author
The Lenifi Underwriting Desk
Lenifi's underwriting desk works out of New York. We review merchant cash advance and term loan files every business day, reading bank statements, existing advances, revenue consistency, and time in business, and we publish the same criteria our underwriters use, so nothing in these guides is theory. Figures quoted here reflect our own published criteria, commission terms, and funding timelines.
Educational content only. It is not legal, tax or financial advice, and approval terms vary by file. Reviewed and maintained by the Lenifi underwriting and partner desks.
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