What Is a Factor Rate?
A factor rate (also called a buy rate) is a decimal multiplier used by merchant cash advance providers to calculate the total amount you must repay. Instead of expressing cost as an annual percentage rate (APR) that compounds over time, MCA lenders use a flat factor rate applied once to the advance amount at origination.
The factor rate is set when you accept the offer — it does not change based on how fast or slow you repay. Whether you pay off your MCA in 6 months or 18 months, the total dollar amount owed remains exactly the same.
Factor Rate Calculation Examples
Typical Factor Rates in 2026 — By Credit Profile
| Business Profile | Typical Factor Rate | Notes |
|---|---|---|
| 680+ FICO, strong revenue, 2+ years in business, clean bank statements | 1.10 – 1.20 | Best tier — lowest risk to lender |
| 640–679 FICO, stable revenue, 1+ year in business | 1.20 – 1.30 | Standard tier — most common rate range |
| 600–639 FICO, moderate revenue, minor NSFs | 1.28 – 1.38 | Moderate risk tier |
| 560–599 FICO, lower revenue or shorter history | 1.35 – 1.45 | Higher risk — still fundable |
| 500–559 FICO, minimal qualification factors | 1.40 – 1.50 | Highest risk tier — bottom of approval range |
| Tax liens, high NSFs, or prior MCA default | 1.45 – 1.50+ | Specialized lenders only — very high rate |
Factor Rate vs. APR — The Critical Comparison
The most important thing to understand about factor rates vs. APR: a factor rate doesn't account for time. A 1.30 factor rate translates to very different APRs depending on how quickly you repay.
| Factor Rate | Repayment in 6 Months | Repayment in 12 Months | Repayment in 18 Months |
|---|---|---|---|
| 1.10 | ~20% APR | ~10% APR | ~6.7% APR |
| 1.20 | ~48% APR | ~24% APR | ~16% APR |
| 1.30 | ~75% APR | ~38% APR | ~25% APR |
| 1.40 | ~104% APR | ~52% APR | ~35% APR |
| 1.50 | ~133% APR | ~66% APR | ~44% APR |
This is why MCA is never the cheapest form of financing by APR — but APR comparisons can be misleading. An MCA that funds in 24 hours with 500 FICO and no collateral is not competing with a bank loan that takes 60 days and requires 680+ FICO and real estate collateral.
What Drives Your Factor Rate Higher or Lower
Factors That Push Your Rate HIGHER
- Lower personal FICO score (below 600)
- High NSF (non-sufficient fund) fees in bank statements
- Negative daily balances in bank account
- Short time in business (under 1 year)
- Revenue volatility — inconsistent month-to-month
- Existing MCA positions outstanding (stacking)
- Prior MCA default history
- Tax liens or judgments
- High-risk industry classification
- Requesting a very small advance amount
Factors That Push Your Rate LOWER
- Higher personal FICO score (640+)
- Clean bank statements — no NSFs
- Consistent, growing monthly revenue
- 2+ years in business
- No current MCA positions outstanding
- Strong average daily balance
- No prior MCA defaults
- No tax liens or judgments
- Standard-risk industry
- Larger advance amount request
Factor Rate vs. Holdback Rate — Two Different Things
The factor rate determines how much you repay. The holdback rate (also called the remittance rate or repayment rate) determines how fast you repay it — the percentage of daily or weekly revenue withheld until the total is paid.
| Term | What It Controls | Typical Range | Example |
|---|---|---|---|
| Factor Rate | Total repayment amount | 1.10 – 1.50 | 1.30 × $100K = $130K total |
| Holdback Rate | Daily/weekly payment size (how fast) | 8% – 25% of daily revenue | 10% of $5,000/day = $500/day |
A higher holdback rate means you repay faster (shorter term, same total). A lower holdback rate means you repay slower (longer term, same total). Both have the same total cost — the factor rate doesn't change.
How to Calculate Your MCA Daily Payment
- Estimate your average daily revenue: (monthly revenue ÷ 30)
- Multiply by the holdback rate: average daily revenue × holdback %
- Divide total repayment by daily payment to estimate term
Note: 10% holdback on $50K/month revenue would actually be $5,000/month, not $167/day. Let's recalculate with realistic numbers: $1,667/day × 10% = $167/day; $130,000 ÷ $167 = ~779 days. This illustrates why holdback rate, advance amount, and monthly revenue must all be balanced. Lenders typically structure the holdback so the advance repays within 6–18 months.
Red Flags in Factor Rate Disclosures
- Factor rate presented as a "fee": Some MCA providers call their factor rate a "fee percentage" — confirm the calculation is multiplicative (advance × rate), not additive (advance + rate%).
- Undisclosed origination fees: Your effective cost is: (total repayment + all fees) ÷ advance amount. A 1.25 factor rate with 3% origination on $100,000 = $125,000 + $3,000 = $128,000 ÷ $100,000 = 1.28 effective rate.
- "Minimum daily payment" clauses: Some contracts set a minimum daily payment regardless of revenue — this is not true RBF. Confirm the contract specifies a percentage of revenue, not a fixed floor.
- Renewal clauses: Watch for auto-renewal triggers. If your contract includes a clause allowing the lender to automatically renew your MCA when balance reaches a certain level, you may inadvertently stack.
Frequently Asked Questions
- What is a factor rate in a merchant cash advance?
- A factor rate is a decimal multiplier used to calculate total MCA repayment. Formula: Total Repayment = Advance Amount × Factor Rate. A 1.30 factor rate on a $100,000 advance = $130,000 total repayment ($30,000 cost of capital). Factor rates are fixed at origination — they don't compound over time, so the total you owe is the same whether you repay in 6 months or 18 months.
- How do you calculate an MCA factor rate?
- Total Repayment = Advance Amount × Factor Rate. Example: $50,000 × 1.35 = $67,500 total; cost = $17,500. To work backward: Factor Rate = Total Repayment ÷ Advance Amount. Example: $67,500 ÷ $50,000 = 1.35. Use our free MCA calculator to calculate total repayment, daily payment, and estimated term from any factor rate and advance amount.
- What is a good factor rate for a merchant cash advance?
- A good factor rate is 1.10–1.25. Most small businesses qualify for 1.15–1.35 depending on credit, revenue, and operating history. Factor rates above 1.40 are reserved for higher-risk profiles (500–580 FICO, short time in business, NSFs, or prior MCA defaults). T.A.G. shops your file across multiple lenders to find the most competitive factor rate your profile qualifies for.
- What is the difference between a factor rate and an APR?
- Factor rate expresses total repayment as a flat multiple applied at origination — it doesn't account for time. APR is an annualized rate that factors in time. A 1.30 factor rate translates to ~75% APR if repaid in 6 months, ~38% APR if repaid in 12 months, or ~25% APR if repaid in 18 months. The same total dollar cost looks very different as an APR depending on repayment speed. This is why factor rates and APR are not directly comparable — they express different things.
- How can I get a lower factor rate on a merchant cash advance?
- To get a lower factor rate: (1) Improve your personal FICO score — even 580 to 640 can save 0.05–0.15 on your rate; (2) Eliminate NSF fees from your bank statements before applying; (3) Pay off existing MCA positions first; (4) Apply after your business has 2+ years of operating history; (5) Work with T.A.G. — we shop your file to multiple lenders and present you with the best available offer, which is often lower than what any single lender's portal would offer you directly.