How it works
A factor rate is written as a decimal, like the one in the example below. The advance times the factor rate is the total payback, and the difference between the two is the cost of funds. The factor rate does not change over the term.
Why it is not an annual rate
An annual rate depends on how long the money is outstanding. A factor rate does not. The same factor rate costs the same dollars whether you repay over a few months or many, which means the faster you repay, the higher the cost looks when it is expressed as a yearly rate.
So do not set the two numbers side by side. Compare the total dollars repaid and how long it takes to repay them.
What moves the factor rate
A funding partner sets it from the risk it sees: how steady your deposits are, how long you have been trading, any advances you already carry and the amount. Our figures are illustrative ranges. Only an offer sets the real one.
What to ask for
The factor rate, the total payback and cost of funds in dollars, the net deposit after fees, and the number of payments.