Factor rate calculator

How the factor rate calculator works

A factor rate is the multiplier a lender applies to the amount it advances. Multiply the advance by the factor and you have the total payback. The calculator then works out:

• Total payback = advance × factor (or the payback figure you entered).
• Total cost of the money = total payback + upfront fees − the advance.
• Cost per dollar borrowed = total cost ÷ advance, shown in cents.
• Repayment = total payback ÷ the number of repayments in the term (about 21.7 business days or 4.33 weeks per month).
• Cost per dollar per month, so offers with different terms can be lined up fairly.

Why a factor rate is not an interest rate

With an ordinary loan, interest is calculated on the balance you still owe. As you repay, the balance falls and so does the interest. A factor rate does something different: the entire cost is fixed on day one, on the full original advance. By the last few repayments you might owe a small amount, but you are still paying for the whole sum you received at the start.

That is why a factor of 1.25 can feel cheaper than it is. The number looks small, but the cost is squeezed into a short term and charged on money you hand back week by week, so it weighs far more than an interest figure with similar digits would. Business lending doesn't have to show a comparison rate either, so the dollar view is the fairest one you have.

Illustrative example

Illustrative only, round numbers, not a market price. An owner is offered a $40,000 advance with a total payback of $50,000 over nine months, collected weekly. That is a factor of 1.25. The money costs $10,000, which is 25 cents for every dollar received. Weekly repayments come to roughly $1,280 for about 39 weeks. If the owner repays the lot in month four, they should ask whether they still owe the full $10,000 cost, because many factor-based products say yes.

When a factor rate product can make sense

Short, fixed-cost funding can suit a business with strong, steady card or bank deposits, a short-lived need with a clear payback (stock that sells within weeks, a one-off repair that keeps the doors open) and nothing cheaper available in time. It suits poorly when the need is long term, when cash flow is lumpy, or when it is being used to repay another short-term loan. Our verdicts on the best loan for cash flow and consolidating business debt go deeper, and the guide to factor rates explained walks through more maths.

Next step: compare the dollars

Once you know the dollar cost, put it beside a different structure for the same amount using the total cost comparer. Or skip the spreadsheet: tell us what you need in about a minute. There is no credit check when you first enquire, your details stay with one specialist instead of being handed around, and accurate answers mean the first option you hear is one worth comparing.