MCA Factor Rates

The short answer: A factor rate is a decimal multiplier — typically between about 1.1 and 1.5 — that a merchant cash advance funder applies to your advance amount to determine the total amount you must pay back. Unlike an interest rate, it is not annualized and does not compound; it is a single, fixed cost set at signing.

How a factor rate works

The calculation is straightforward:

Total payback = Advance amount × Factor rate

On a $50,000 advance at a 1.3 factor rate, your total payback is $65,000. The fee — the cost of the capital — is $15,000. That figure is fixed regardless of whether you repay in 6 months or 12, unless the funder offers an early-payoff discount.

Factor rate vs. interest rate

An interest rate is annualized and accrues over time; paying a loan down faster reduces the total interest. A factor rate is neither: it is a one-time multiplier on the full advance, and the total payback is locked in the moment you sign. This is the core reason a factor rate and an interest rate are not directly comparable — and why a "1.3 factor" is not the same as "30% interest."

Why the small number hides a large annualized cost

Because an MCA is repaid quickly — often in 6 to 18 months — the fixed fee is compressed into a short window. A $15,000 fee on a $50,000 advance over 9 months annualizes to roughly 40%, even though the factor rate reads as 1.3. To compare a factor rate to any loan or credit line, convert it to an APR-equivalent first. The MCA calculator does this for you, and the MCA rates page explains what drives the factor rate you're offered. For the full overview, see the merchant cash advance guide.