Guide

What is a factor rate? How to work out what you'll actually pay back

If you've been offered a merchant cash advance, the offer probably came with a number like 1.30. That's the factor rate. It looks small, and it isn't an interest rate. It's a multiplier, and it tells you the most important number in the whole offer: how much you'll pay back in total.

At Haven, that total is the first thing we show anyone, before they decide anything. Here's how to work it out yourself.

The math is one line

Advance amount × factor rate = total payback

For example, on a $10,000 advance with a factor rate of 1.30:

$10,000 × 1.30 = $13,000

You receive $10,000 and pay back $13,000. The cost of the money is the difference: $3,000.

Every number on this page is an illustration, not an offer. Real offers depend on the funding provider and your business.

Why it's easy to misread

It isn't a percentage you pay per year. An interest rate is usually charged over time, and the balance shrinks as you pay. A factor rate is applied once, to the whole amount. The total payback is generally set when you sign.

Time changes what that cost really means. The same $3,000 cost is a very different deal if you repay it over twelve months than if you repay it over four. The factor rate alone doesn't tell you that. Always ask how long repayment is expected to take, and how often payments come out.

Paying early doesn't always lower the total. Some agreements offer an early-payment discount. Others don't. If it matters to you, check that it's written into the agreement before you accept.

What the factor rate leaves out

The amount that actually reaches your account. Some offers deduct fees before the money is sent. If $500 is deducted from a $10,000 advance, $9,500 arrives, and you still pay back $13,000. Compare the total payback with what really lands in your account, not with the headline amount.

How the payments work. Some agreements take a percentage of your sales, so payments rise and fall with your revenue. Others take a fixed amount by ACH every business day or every week. Ask which one it is, and whether you can ask for an adjustment if sales drop.

Comparing two offers: the lower rate isn't always the better deal

Say two funding providers each offer $10,000.

• Offer A: factor rate 1.30, $500 in fees deducted up front, repaid over about six months.
• Offer B: factor rate 1.35, no deductions, repaid over about nine months.

Offer A has the lower factor rate. Now look at the numbers that matter:

• Offer A: $9,500 reaches your account. You pay back $13,000. The money costs you $3,500, and you repay it in about six months, roughly $103 every business day.
• Offer B: $10,000 reaches your account. You pay back $13,500. The money also costs you $3,500, and you repay it over about nine months, roughly $71 every business day.

Same cost, but Offer B puts more money in your account and takes a smaller bite out of each day's sales. For a business with uneven weeks, that can matter more than the rate. You'd only see it by asking for the total, the net amount and the term, side by side.

Both offers are made up to show the math. Business days are counted at about 21 a month.

Seven questions to ask about any offer

1. What is the total repayment amount?
2. What is the expected payment frequency?
3. Is the payment variable or scheduled?
4. Are reconciliation or adjustment rights available?
5. What fees or deductions apply?
6. What net amount will reach the business account?
7. Does the agreement include an early-payment benefit?

Ask us the same seven. Whoever won't answer them in writing isn't the one to work with.

Be careful if a broker

• quotes you the factor rate but won't tell you the total dollar figure
• can't say how much will actually reach your account
• pushes you to sign today before you've read the agreement
• asks you to pay an application fee before you've been funded

Haven does not charge an upfront application fee. If a transaction closes, Haven may receive compensation from the funding provider, and that may be reflected in how the provider prices it. We'd rather tell you that than have you wonder.

How Haven helps

You tell us where you stand. A few quick questions, then a short call. Bank statements are the starting point. Additional documents or verification may be required depending on the provider and offer.

We bring back what may be available. We take your file to funding providers and come back with any offers they make. We walk you through how each one is priced, how the payments work and what the total comes to.

You decide, or you don't. You see the full terms before anything is signed. If an offer doesn't work for you, you're not required to accept it. We don't chase.

Haven is a commercial-financing broker, not a lender, and does not make credit decisions. Approval, pricing, terms and timing are set by the funding provider. Submitting a form is not an approval or an offer of financing. This page is general information, not financial, legal or tax advice.