Factor Rate
A factor rate is a pricing format used in merchant cash advances and some short-term business financing, expressed as a decimal multiplier (such as 1.25) applied to the funded amount to determine total repayment. Unlike an interest rate, it is a fixed cost that does not change with how quickly the advance is repaid.
How a factor rate works
A factor rate prices financing as a multiplier rather than as interest that accrues over time. The total repaid is the funded amount times the factor rate. An advance of 50,000 dollars at a factor rate of 1.40 means the borrower repays 70,000 dollars, a fixed 20,000 dollars of cost, regardless of how fast the balance is paid down. Factor rates typically run from about 1.1 to 1.5.
Factor rate versus interest rate and APR
The crucial difference is that a factor rate is fixed at funding and does not shrink with early repayment, where an interest rate does. Because repayment usually happens over a short window through daily or weekly remittances, the annualized cost of a factor rate is far higher than the multiplier suggests, which is why it is compared with care against an interest-rate or fee structure.
Why it matters for funders
The factor rate sets the gross economics of every deal, but realized yield depends on collecting the agreed remittances on schedule. Missed and bounced payments stretch repayment and erode return. Zolvo helps funders reconcile daily and weekly remittances through payment matching, detect missed payments early, and monitor performance for merchant cash advance portfolios, so the return implied by the factor rate is actually realized.