How to read your results
Business financing is quoted in two very different languages. Banks and term lenders quote an interest rate (APR). Merchant cash advances and revenue-based financing quote a factor rate. This tool translates between them so you can compare offers on equal footing.
What a factor rate really means
A factor rate is a flat multiplier on the money you receive. Borrow $50,000 at a 1.30 factor rate and you repay $65,000 — no matter how quickly you pay it off. That $15,000 is your total cost of capital. The catch: because a factor rate does not decline when you repay early, a "small-sounding" factor of 1.20 can translate to an APR well above 40% once you account for a short, frequent repayment schedule.
Why APR is the number that matters
APR (annual percentage rate) normalizes cost across products and terms. A 1.30 factor rate paid over 6 months is roughly twice as expensive, in APR terms, as the same 1.30 factor paid over 12 months — because you are giving up the money for half as long. Always compare the estimated APR and the total dollar cost side by side before you sign.
When each product makes sense
- Term loan — the cheapest option when you qualify. Best for planned investments with a clear payback: equipment, expansion, refinancing costlier debt.
- Merchant cash advance / RBF — faster and easier to qualify for, useful for short-term, revenue-generating needs when speed matters more than the lowest rate. Best used briefly, not as long-term financing.
- Line of credit — flexible for recurring or unpredictable cash-flow gaps; you only pay for what you draw.
Worked example
A restaurant takes a $40,000 advance at a 1.28 factor rate, repaid weekly over 10 months. Total payback is $51,200, a $11,200 cost of capital. Spread across ~43 weekly payments of about $1,190, the estimated APR lands in the low-60s percent range — far higher than the 1.28 factor "feels." Run your own numbers above before committing.
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Frequently asked questions
What is a factor rate on a merchant cash advance?
A decimal multiplier (usually 1.10–1.50) that sets your total repayment. At a 1.30 factor on $50,000, you repay $65,000. It does not fall if you repay early, which is why converting it to APR matters.
How do you convert a factor rate to an APR?
APR depends on repayment speed. This calculator solves for the annualized rate implied by your advance amount, total payback, term, and payment frequency.
Is a lower factor rate always cheaper?
No. A low factor paid back very fast can carry a higher APR than a slightly higher factor paid over a longer term. Compare APR and total dollar cost, not the factor alone.
How accurate is this calculator?
It gives good-faith estimates for education and comparison. Actual cost depends on your final offer, fees, and holdback. Confirm total payback and payment terms in your agreement before signing.
Disclaimer: This calculator is for educational and comparison purposes only and does not constitute a loan offer, financial advice, or a guarantee of terms. SmallByzLoans is a funding marketplace, not a lender or financial advisor.