Factor rate is the term merchants ask about most and understand least. Explaining it clearly builds trust.
The basic math
The factor rate is the number the advance is multiplied by to get the total payback. An advance with a 1.3 factor pays back 1.3 times the amount advanced. The rate is set up front, so the total payback is known from day one.
Why it is not an interest rate
A factor rate is not an annual percentage rate. Comparing the two directly confuses merchants. Explain the total payback and the expected remittance instead.
How to explain it
"You receive the advance today. The total you deliver back is the advance times the factor rate. Payments come out daily or weekly from your business account until it is paid."
What sets the rate
The funder decides, based on the file: deposits, balances, time in business, industry and existing advances. Brokers should never promise a rate before the funder reviews the file.
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See holdback and remittance next, and the full MCA glossary.
