Glossary · Pricing and math
Factor rate
The multiplier that sets what a merchant repays on a cash advance: advance amount times factor rate equals the total payback, usually 1.10 to 1.55.
Also called factor, MCA factor rate, buy factor
A factor rate is how merchant cash advances are priced. Instead of an interest rate that grows with time, the funder quotes a single multiplier, and the merchant owes the advance times that number no matter how fast it is paid back. A 1.35 factor on $50,000 means $67,500 is owed.
Most MCA offers fall between about 1.10 and 1.55. Stronger files (more revenue, fewer positions, cleaner bank statements) land at the low end; riskier paper sits at the high end.
Two factors matter on most deals: the buy rate the funder offers the ISO and the sell rate the merchant actually signs. The difference is the ISO's upsell, paid as points.
A factor rate is not an interest rate
A 1.35 factor repaid over six months costs far more than 35% a year. To compare it with a loan, estimate the effective APR from the payment schedule.
Formula
payback (RTR) = advance × factor rate cost of capital = payback − net funding effective factor on net = payback ÷ net funding
Example
A $50,000 advance at a 1.35 factor has a payback of $67,500. With a 4% origination fee ($2,000) the merchant receives $48,000, so the cost of capital is $19,500 and the effective factor on the cash received is 1.406.
Track it on every deal
Statements, offers, positions and commissions with the math worked out, in one CRM for lending companies.
Related
- FeatureOffer calculator and comparisonEnter advance, factor, buy rate, fees and frequency and get payback, net funding, payment, term, holdback and your commission. Compare every lender's offer side by side.Read
- Free toolMCA factor rate calculatorFree merchant cash advance calculator. Enter the advance, factor rate, fee and term to get payback, daily or weekly payment, cost of capital and an APR estimate.Read
- GlossaryRTR (right to receive)RTR is the total amount of future receivables a funder buys in a merchant cash advance: the advance times the factor rate, also called the payback.Read
- GlossaryBuy rateThe buy rate is the lowest factor a funder will accept on a deal from an ISO. The ISO can sell above it, and the gap becomes upsell commission.Read
- GlossarySell rateThe sell rate is the factor rate the merchant actually signs, set by the ISO at or above the funder's buy rate. It decides the payback and the ISO's upsell.Read
- GlossaryEffective APR (estimate)An effective APR estimate annualizes an MCA's cost from its payment schedule so it can be compared with loans. It is an estimate, not a disclosure figure.Read
- GlossaryNet fundingNet funding is the cash a merchant actually receives: the advance minus origination and other fees and minus any payoffs of existing advances.Read
- GlossaryPointsPoints are ISO commission expressed as a percent of the funded amount: base points paid by the funder plus upsell points from selling above the buy rate.Read