Factor Rate: How MCA Repayment Works

What Is a Factor Rate? How MCA Repayment Actually Works

A factor rate is a multiplier, typically 1.1 to 1.5, that determines the total repayment amount on a Merchant Cash Advance. Multiply your advance amount by the factor rate to get the full amount you owe. Unlike interest rates, factor rates are fixed: paying back early does not reduce the total cost.

Quick Summary

• Factor rate = decimal multiplier applied to your advance amount (e.g. 1.3 means you repay 1.3x what you borrowed)
• It is not an interest rate, there is no APR equivalent that directly compares
• Paying early does not reduce the total amount owed (unless the provider offers an early payoff discount)
• Repayment happens as a daily percentage of your revenue, called a holdback rate (10–20%)
• Factor rates range from 1.1 (strong revenue, long history) to 1.5 (newer business, lower revenue)

What Is a Factor Rate?

A factor rate is the cost structure used by Merchant Cash Advance providers instead of a traditional interest rate. It is expressed as a decimal: 1.2, 1.35, 1.49.

Here is how it works: the provider multiplies the amount they advance to you by the factor rate. The result is the total amount you repay, no more, no less.

Example:

• Advance amount: $50,000
• Factor rate: 1.3
• Total repayment: $65,000 ($50,000 × 1.3)
• Cost of capital: $15,000

That $15,000 is the provider's fee for advancing you the $50,000. You repay the full $65,000 over time as a percentage of your daily business sales.

How Do You Calculate Factor Rate Cost?

The math is simple: Advance Amount × Factor Rate = Total Repayment

Your cost of capital is Total Repayment − Advance Amount.

Common examples:

• $25,000 at 1.49 = $37,250 total owed ($12,250 cost)
• $50,000 at 1.4 = $70,000 total owed ($20,000 cost)
• $100,000 at 1.3 = $130,000 total owed ($30,000 cost)
• $150,000 at 1.2 = $180,000 total owed ($30,000 cost)

The factor rate you receive depends on your monthly revenue, how long you have been in business, your industry, and your repayment history with prior advances.

How Does MCA Repayment Actually Work?

Once your advance is funded, typically 24 to 48 hours after approval, repayment begins automatically. The provider collects a fixed percentage of your daily business deposits, called the holdback rate. Holdback rates typically range from 10% to 20%.

Example repayment scenario:

• Advance: $50,000
• Factor rate: 1.3
• Total repayment: $65,000
• Holdback rate: 15%

If your business deposits $5,000 on a given day, the provider collects $750 (15% of $5,000). On a slower day with $2,000 in deposits, they collect $300. Revenue fluctuates, payments fluctuate with it.

This is a key distinction from a term loan. With an MCA, there is no fixed monthly payment. Slow months mean smaller daily payments. Busy seasons pay down the balance faster.

Repayment timeline depends on your daily revenue, not a fixed schedule. A $65,000 repayment on a business generating $30,000 per month with a 15% holdback typically takes 4 to 8 months to repay.

Factor Rate vs. Interest Rate: What Is the Difference?

They measure cost completely differently, which is why direct comparisons can be misleading.

Interest rate:

• Charged on the outstanding balance
• Decreases as you pay down principal
• Paying early reduces total interest paid
• Expressed as APR (annual percentage rate)

Factor rate:

• Applied to the original advance amount upfront
• Fixed regardless of how quickly you repay
• Paying early does not reduce the total owed
• Not expressed as APR

This is the most important thing to understand about factor rates: early repayment does not save you money. If you take a $50,000 advance at 1.3, you owe $65,000, whether you repay it in 3 months or 12. The total is set at origination.

Some providers offer an early payment discount, but this is not standard. Always ask before signing.

What Factor Rates Can You Expect?

Factor rates vary based on several factors:

Lower factor rates (1.1–1.2) go to businesses with:

• Strong monthly revenue ($50,000+/month)
• 2+ years in business
• Clean bank statements with no overdrafts
• Repeat MCA customers with good repayment history

Mid-range factor rates (1.2–1.35) go to businesses with:

• Solid revenue ($15,000–$50,000/month)
• 6+ months in business
• Minor bank statement irregularities

Higher factor rates (1.35–1.5) typically apply to:

• Newer businesses (6–12 months)
• Lower monthly revenue near the minimum
• Industries with higher perceived risk (restaurants, retail, seasonal businesses)

No legitimate provider will advertise a factor rate over 1.5 for a standard advance. If you see rates above that, read the full contract carefully.

Is a High Factor Rate Worth It?

It depends entirely on what you are using the capital for.

A $50,000 advance at 1.35 costs $17,500. That is significant. But if that capital lets you purchase inventory ahead of your peak season that generates $80,000 in additional revenue, the math works in your favor.

Questions to ask before accepting any advance:

• What is my expected return on this capital?
• Can my daily cash flow handle the holdback rate?
• Do I have a specific use for this money or am I just managing a cash shortfall?

MCA works best as a growth tool, payroll coverage during a growth period, inventory purchase, equipment, expansion. It is a poor choice for covering ongoing operating losses.

Frequently Asked Questions

What is a factor rate on a Merchant Cash Advance?

A factor rate is a decimal multiplier, typically between 1.1 and 1.5, used to calculate the total repayment amount on a Merchant Cash Advance. Multiply your advance amount by the factor rate to get the total you owe. A $50,000 advance at 1.3 means you repay $65,000.

Does paying off an MCA early save money?

Not automatically. Factor rates are applied to the full advance amount upfront, so the total owed is fixed regardless of repayment speed. Paying early does not reduce the total unless the provider offers a specific early payment discount. Always ask before signing.

How is a factor rate different from an APR?

APR measures interest on your outstanding balance and decreases as you repay. A factor rate is a flat multiplier applied to the original advance, it does not change as you repay. They measure cost differently and cannot be directly compared without knowing your repayment timeline.

What is a holdback rate?

The holdback rate is the percentage of your daily business deposits collected by the MCA provider for repayment. Typical holdback rates are 10% to 20%. Slower revenue days mean smaller payments; busier days pay down the balance faster.

What factor rate can I expect?

Factor rates typically range from 1.1 to 1.5. Businesses with strong revenue, 2+ years in operation, and clean bank statements qualify for lower rates. Newer businesses typically see rates in the 1.3 to 1.45 range. Your specific rate is set at underwriting.

Do I need good credit to qualify?

No minimum credit score is required for a Merchant Cash Advance. Approval is based primarily on your monthly business revenue ($15,000+/month) and time in business (6+ months).

See If You Qualify for a Merchant Cash Advance

If your business generates $15,000 or more per month and you have been operating for at least 6 months, you may qualify for $10,000 to $250,000 in funding within 48 hours. No minimum credit score required.

Check My Eligibility →

Subject to underwriting approval. Factor rates and holdback rates vary by applicant and are determined at origination.

Last updated: April 1, 2026