Two offers can land in your inbox the same week and look like they’re written in different languages. One says 1.30. The other says 18%. Neither number tells you which one costs less, and that’s the problem this guide solves.
What a factor rate tells you
A factor rate is how cash advances are priced. Multiply the advance by the factor rate and you get your total payback. $50,000 at 1.30 means you repay $65,000, so the cost is $15,000.
That’s the strength of a factor rate. The total is fixed the day you sign, and it’s easy to see.
What it leaves out is time. $15,000 paid back over six months costs you a lot more than $15,000 paid back over eighteen, because you have the money for a shorter stretch. A factor rate also isn’t an interest rate, so 1.30 doesn’t mean 30% a year. Typical factor rates run 1.10 to 1.40.
What an APR adds
An APR, or annual percentage rate, spreads the cost of money over a year. It includes interest and, done properly, the fees you pay to get the money. That’s why lenders quote it on loans and lines of credit.
Because an APR accounts for time, it lets you compare offers with different terms. A short, daily-pay advance can carry a much higher APR than its factor rate suggests, even when the dollar cost looks reasonable.
APR has a blind spot too. A low APR on a long loan can still mean more total dollars than a short advance. So use APR to compare the price of money, and total payback to compare what leaves your account.
Before you sign
Before you sign, ask for: total payback, every fee, payment schedule, early payoff terms.
Put two offers side by side
Say you need $50,000 for a holiday inventory buy. These are example figures, not real quotes.
Offer A, a cash advance: factor rate 1.30, repaid over about six months in daily payments. Total payback is $65,000, or about $516 every business day. Estimated as an APR, that’s over 100%.
Offer B, a term loan: 18% interest over 12 months, plus a $1,500 origination fee. The payment is about $4,584 a month, and total cost is about $6,500. With the fee counted, the APR is about 24%.
Offer B costs far less. But it may take one to three weeks to close, and it needs a cleaner file. If the order is due Friday, Offer A may be the one that fits. The point is to see both numbers before you choose.
| Item | Figure | When charged |
|---|---|---|
| Amount you receive (example offer A) | $50,000 | At funding |
| Factor rate | 1.30 | Set at signing |
| Total payback | $65,000 | Over about 6 months |
| Payment | $515.87 a day | Each business day |
| Paying off early | Only saves money with a discount | Check your agreement |
| What we're paid | 0.05 factor points ($2,500), paid by the funder | At funding, by the funder |
The questions that settle it
Before you sign anything, line up every offer on the same four things.
- Total payback. The dollar amount that leaves your account, start to finish.
- Payment size and schedule. Daily, weekly or monthly, and whether your slow weeks can carry it.
- Every fee. Origination, admin, closing and anything taken out of the money before you get it.
- Early payoff. With a loan, paying early usually saves interest. With a cash advance, it only saves money if your agreement includes a discount.
We put every offer in this format for you, including what we’re paid. If something doesn’t add up, we’ll tell you.
