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By Travis Yule — CEO & Founder, Full Send Funding
Published 2022-10-25 · Updated 2026-09-30
A 1.30 factor is not 30%. Repaid over twelve months it annualizes near 51%; over six, near 97%. The full conversion, and why paying early raises the annualized rate.
In one sentence: A factor rate is a fixed dollar cost on the amount advanced while an APR is a rate on the amount still owed, so the same advance repaid over twelve months carries an annualised cost roughly double the factor's headline percentage — and repaying it faster raises that rate rather than lowering it.
A factor rate and an APR are not two ways of saying the same thing, and the gap between them is not small. A factor rate of 1.30 is routinely described as "30%". Repaid over twelve months, its actual annualized cost is closer to 51%. Repaid over six, it is closer to 97%.
That is not a trick and nobody is hiding it. It falls out of a single fact about how the two numbers are constructed: a factor rate is charged on the amount you were advanced, once, while an APR is charged on the amount you still owe, continuously. Since you start paying an advance back immediately, you never have the full amount for the full term — so the same dollar cost, expressed as an annual rate, is roughly double.
This article shows the arithmetic in full, because the conversion is the only way to compare a merchant cash advance against a term loan, a line of credit, or an SBA offer, and almost nobody publishes it.
With a factor rate, the total cost is fixed at signing:
Total payback = advance × factor rate
A $100,000 advance at a 1.30 factor means $130,000 back. That is the whole calculation. The $30,000 does not accrue, does not compound, and does not shrink if you pay early unless the agreement grants an early-payoff saving. It is a fixed purchase price attached to the money, not a rate running against a balance.
With an interest rate, the cost is a function of two things: the rate and how long you hold the money. Pay a loan off early and you stop paying interest on the part you returned.
So the two numbers answer different questions. The factor rate answers "how many dollars will this cost me?" The APR answers "what is this money costing me per year that I hold it?" You need the second one to compare anything to anything.
It is worth understanding, because it explains several things about how these agreements are written.
A merchant cash advance is not structured as a loan. It is structured as a purchase of a portion of your future receivables at a discount. You are not borrowing $100,000 and owing $130,000; you are selling $130,000 of future sales for $100,000 today. That distinction is not cosmetic — it is the legal foundation of the product, and it has consequences:
None of that makes an advance a bad product. It makes it a specific product: fast, available to businesses a bank will not serve, priced accordingly, and structured in a way that means the cost does not fall when you repay early unless the agreement grants an early-payoff saving. Knowing why the structure exists is what lets you judge when it fits.
Here is the honest version, in three steps.
Step 1. Find the total cost.
Advance $100,000, factor 1.30 → payback $130,000 → cost $30,000.
Step 2. Find the average balance you actually hold.
This is the step everyone skips. With level payments across twelve months, you hold the full $130,000 obligation on day one and zero on the last day. Averaged across the term, the amount still outstanding is about 54% of the total — a bit over half, not all of it.
Step 3. Annualize against that average, not against the advance.
Because you had roughly half the money for the full period, the annual rate has to be roughly double the simple cost percentage. Solving it properly — finding the rate that makes twelve payments of $10,833 equal to $100,000 today — gives 4.29% per month, which is 51% nominal APR, or 65% effective annually once monthly compounding is counted. That is the actuarial method federal consumer-credit rules prescribe for an APR, applied here to a commercial advance so that the two can be compared on one basis.[1]
A quick approximation you can do in your head, accurate to a few points for most structures:
APR ≈ (factor − 1) × (12 ÷ months) × 2
For 1.30 over 12 months: 0.30 × 1 × 2 = 60%, against a true 51%. Close enough to know immediately that a "30%" offer is not competing with a 12% bank loan — it is competing with a credit card at its worst.
Set out across common factors and terms, the pattern is consistent and worth internalising.
A 1.15 factor over six months costs more per year than a 1.35 factor over eighteen. The term drives the annualized cost more than the factor does.
Nominal APR, computed as the rate that equates level monthly payments to the amount advanced. Factors are illustrative and are not quotes.
Two things jump out.
The term matters more than the factor. A 1.15 factor over six months (50% APR) is more expensive than a 1.35 factor over eighteen (40% APR), even though 15% "sounds" less than half of 35%. Any comparison that looks only at the factor rate is comparing the wrong number.
Short and cheap-sounding is the most expensive quadrant. The offers that read best on a term sheet — small factor, quick term — sit at the top-left of that table and carry some of the highest annualized costs on it.
This is the part that surprises people, and it is the single most important thing to understand about fixed-fee capital.
Because the fee is fixed at signing, repaying faster does not save you a cent unless the agreement grants an early-payoff saving. It compresses the same cost into less time — which, expressed as an annual rate, makes it go up.
The cost is $30,000 in every row, on an advance with no early-payoff saving. Only the time changes — which is why repaying such an advance early raises its annualized cost rather than lowering it.
Same advance, same factor, same $30,000 of cost. Repaid over eighteen months it annualizes to 35%. Repaid over four, it annualizes to 137%.
This has a direct practical consequence for any advance collected as a true holdback — a percentage of each day's card settlements taken at the processor: a good sales month makes your capital more expensive, not less. The holdback takes a share of a bigger number, the balance retires sooner, and the fixed fee gets spread over fewer days. Businesses often assume the opposite. Ours are not collected that way. On a percentage-of-sales deal, the payment is a fixed debit set from that percentage of your sales, and it does not change by itself.
It also means early payoff is only worth doing if there is a real discount attached to it. Ask, in writing, before you sign: if I repay in full at month four, what do I owe? If the answer is the full payback amount, prepaying is a decision to raise your own cost of capital. Some funders offer a genuine early-payoff discount; the ones who do will put a schedule in the contract.
Comparing factor rates alone still misses several things that move the real cost materially.
Origination and underwriting fees. A fee deducted from the advance reduces what you receive without reducing what you repay. A $100,000 advance at 1.30 with a 3% origination fee nets you $97,000 and still costs $130,000 — an effective factor of 1.34 on the money you actually got, and roughly six points of extra APR at a twelve-month term. Always run the math on net funded, not on the face amount.
Renewals and unamortized cost. If you renew before the first advance is repaid, the outstanding balance is usually paid off out of the new advance. The unpaid portion of the original fee goes with it. You can end up paying a fee on a fee — the practice usually called double-dipping. The arithmetic and what to ask for are covered in how funding renewals work, and it is worth reading before a renewal conversation, not after.
Remittance frequency. Daily and weekly remittance of the same total move cash out of your account at very different rhythms. The annualized cost is similar; the strain is not. A business with lumpy receipts — a contractor, a wholesaler — can service a weekly debit comfortably and choke on a daily one. Daily versus weekly payments is a separate decision from price and deserves its own thought.
Reconciliation rights. In a true merchant cash advance, remittance is a percentage of sales, so a slow month should mean smaller payments. Whether that actually happens depends on the reconciliation clause. A fixed daily debit that never adjusts is functionally a loan payment regardless of what the agreement is titled — which changes both your risk and, if revenue falls, your effective cost. Ours are collected by a fixed debit. On a percentage-of-sales deal, the payment is a fixed debit set from that percentage of your sales, and it does not change by itself. If your sales slow, you can ask us to adjust your payments to your actual revenue; we answer a request within 5 business days.
Stacking. A second position layered on the first does not add its cost to the first; it multiplies the strain, because both debits hit the same account on the same days. See the stacking trap.
Most comparisons fail because the offers are not the same shape. There are three common ones, and each hides its cost somewhere different.
Fixed-fee (factor rate). Advances and revenue-based financing. Cost fixed at signing, no benefit to early repayment unless the agreement grants one, term uncertain if remittance is a percentage of sales. Where the cost hides: the term. The same factor is a completely different rate depending on how fast you repay it.
That qualifier is the whole of the prepayment question, and it is worth being concrete about our own answer rather than leaving it as advice about the industry. Early payoff here is structured deal by deal rather than by a standard schedule: some agreements forgive all of the remaining cost, some half of it, some carry a custom prepayment step-down, on some renewals the outstanding balance is forgiven, and some carry no saving, so paying early settles the full remaining balance. There is never a prepayment fee: paying early never costs more than paying on schedule. None of the savings is automatic, which is exactly why it belongs in the document before you sign and not in a conversation afterwards. The prepayment clause, read line by line sets out what to ask for and what a usable answer looks like.
Amortizing interest (term loan). Bank loans, SBA loans, most online term lenders. Interest accrues on the declining balance; early repayment genuinely saves money, though some carry a prepayment penalty. Where the cost hides: the fees. An origination fee on an amortizing loan raises the APR far more than its headline percentage suggests, because you pay it on day one and get no use of it.
Draw-based (line of credit). You pay for what you draw, for as long as you hold it, plus sometimes a monthly or annual maintenance fee and sometimes a fee per draw. Where the cost hides: utilisation. A line priced at 2% per draw plus 1% monthly looks cheap and is not, if you keep it fully drawn all year — but it is genuinely cheap if you draw for two weeks around a payroll gap and repay. A business line of credit rewards discipline in a way a lump-sum product cannot.
To compare across all three, reduce each to the same two numbers — net funded and total repaid over the period you will actually hold it — and then annualize. That is the only comparison that survives contact with three different structures, and it is why step 3 below asks you to estimate the term twice.
Put both on the same four lines. Nothing else is needed.
Then compare that last number against the alternatives you actually have. Not against a bank rate you cannot get today — against the offers in front of you, plus the cost of doing nothing.
The reason to run step 3 twice is that on a percentage-of-sales product, your revenue forecast is the term, and the term is what sets the rate. Two scenarios take five extra minutes and will tell you whether the deal is robust or only works if the next six months go well.
An honest article about cost has to say this part, and most do not.
APR is a rate. Rates are for comparing money to money. They are not, by themselves, a decision. What decides is the return on what the money does, over the same period.
Capital at 51% APR held for four months costs about 17% of the amount in real dollars. If that money buys inventory that turns twice at a 40% gross margin, wins a contract that would otherwise go to a competitor, or replaces a piece of equipment whose failure would stop production, the arithmetic can favour taking it — decisively. Speed has value that a rate does not capture: a bank facility you receive in ninety days is not an alternative to money you need this week.
Where high-cost capital reliably destroys value is the opposite case: covering an operating loss, plugging a hole that recurs every month, or refinancing an obligation that is expensive because the business cannot support it. There, the rate compounds a problem the money was never going to fix. If you are considering capital for those reasons, the honest recommendation is to fix the underlying issue first, and we will say so on the phone.
The test is simple: name the specific thing this money buys, and what it returns, before you name the rate you would accept for it. If you cannot finish that sentence, the rate is not the problem — and there are situations where borrowing is the wrong answer entirely.
Before signing anything:
A funder who will not put those seven answers in writing has told you something useful.
A factor rate states a fixed dollar cost; an APR states a rate against a shrinking balance, and the two differ by roughly a factor of two because you start repaying immediately. Convert with (total repaid ÷ net funded − 1) × (12 ÷ months) × 2 and compare that. The term drives the annualized cost more than the factor does, paying a fixed-fee advance early, absent an early-payoff saving, raises its effective rate rather than lowering it, and fees, renewals and remittance frequency all move the real number. A high rate is not automatically a bad deal — but it is only a good one when you can say precisely what the money buys and what that returns.
Our own published range is 4.5% to 45% cost of capital, depending on qualifications and term length, on terms from four months to three years. That is a wide band because the inputs above genuinely move it that far — a strong file on a longer term and a thin file on a four-month term are not the same transaction, and a funder quoting one number for both is quoting a number that cannot be true for both. Every offer we make states the net funded amount and the total payback in plain dollars before signing.
To run these conversions on an offer in front of you, the factor rate to APR converter computes the annualised cost both ways this article derives them — the simple annualisation the industry quotes, and the actuarial APR a disclosure statute requires — from your own funded amount, factor rate, term and payment frequency. For how we price and get paid, including the fees we charge and the ones we do not, see how we make money. To see real numbers for your business rather than an illustration, check what you would qualify for — it takes about a minute, uses no credit pull, and costs nothing.
The factor rates and terms in this article are illustrative, chosen to show the arithmetic across a realistic range. They are not quotes. Actual pricing depends on the business, and every offer we make states the net funded amount and the total payback in dollars.
This article describes how these transactions are generally structured and how the characterisation question has been analysed where it has been litigated. It is not legal advice; characterisation is fact-specific, varies by state, and the agreement you sign and current law in your jurisdiction control.
Every APR in this article is computed by the actuarial method: the monthly rate that discounts a level monthly payment stream to the amount advanced, multiplied by twelve for the nominal figure, with the effective annual rate shown where monthly compounding is counted. The factor-to-APR chart solves that rate for factors of 1.15, 1.25, 1.35 and 1.45 over terms of six, nine, twelve and eighteen months; the payoff-speed table holds a $100,000 advance at 1.30 — a $30,000 cost — fixed and varies only the term from eighteen months to four. The site's arithmetic audit recomputes every value from those inputs before publication.
The approximation APR ≈ (factor − 1) × (12 ÷ months) × 2 is offered for mental arithmetic and its error is stated where it is used (60% against a true 51% for 1.30 over twelve months). The factor rates and terms are illustrative and are not quotes; the firm's own published range is 4.5% to 45% cost of capital, depending on qualifications and term length.
The disclosure section states the New York and California statutes from their primary texts. Characterisation is fact-specific and varies by state; this is information rather than legal advice.
No. A 1.30 factor means you repay 1.30 times what you were advanced — $130,000 on $100,000 — which is 30% in dollars. Because you begin repaying immediately and never hold the full amount for the full term, the annualized cost is roughly double: about 51% over twelve months, and about 97% over six. The dollar figure and the rate answer different questions.
Take the total repaid, divide by the amount actually funded after fees, subtract one, annualize by multiplying by 12 divided by the term in months, then double it to account for the declining balance. For a $100,000 advance at 1.30 repaid over twelve months: (130,000 ÷ 100,000 − 1) × 1 × 2, or about 60% — against a precisely computed 51%. The approximation runs a few points high and is close enough to tell you which category of capital you are looking at.
Because an advance is structured as a purchase of future receivables at a discount rather than as a loan. A purchase price has a discount, not an interest rate, and state usury ceilings are written about loans. That is the honest structural answer. Eleven states now require a commercial financing disclosure; two of them, New York and California, require an estimated APR on these products, so the direction of travel is toward the number appearing on the offer itself.
Across everything we fund, cost of capital runs from 4.5% to 45% depending on your qualifications and the term length. That is a total cost on the amount funded, not an annual rate, so no factor can be called good or bad without the term it is repaid over. A 1.15 factor repaid over six months annualizes to about 50%; a 1.35 factor over eighteen months annualizes to about 40%. The lower factor is the more expensive money. Compare annualized cost on net funded amounts, over the term you will actually hold it, and never compare two factors without their terms.
Not the stated factor, but it changes what you pay. A fee deducted from the advance reduces what you receive without reducing what you repay: $100,000 at 1.30 with a 3% fee nets $97,000 and still costs $130,000, an effective factor of about 1.34 and roughly six points of extra APR at a twelve-month term. Always run the arithmetic on the net funded amount, not the face amount.
Not automatically, and this is the single most counter-intuitive feature of the structure. The payback amount was fixed at signing, so unless the agreement provides an explicit discount, retiring it early means delivering the same total over fewer days — which raises the effective annualised cost rather than lowering it. Ask specifically whether early payoff reduces the payback amount, get the answer in the document rather than in conversation, and treat a vague reply as a no. At Full Send Funding, early payoff is structured deal by deal rather than by a standard schedule: some agreements forgive all of the remaining cost, some half of it, some carry a custom prepayment step-down, on some renewals the outstanding balance is forgiven, and some carry no saving, so paying early settles the full remaining balance. There is never a prepayment fee: paying early never costs more than paying on schedule. Whichever applies to yours is set out in writing before you sign.
Because state interest-rate ceilings are written about loans, and an advance is documented as a purchase of future receivables. That is the commercial reason the structure exists and the honest answer to why it prices well above bank credit. It is not an unconditional exemption, though: where the question has been litigated, courts have looked past the document at whether repayment is genuinely contingent — a fixed daily debit with a reconciliation right that exists only on paper looks considerably more like a loan than a purchase, whatever the cover page says.
Travis Yule worked in business funding before starting Full Send Funding in 2021, and has more than five years in business funding in all. He leads the company from Middle Grove, New York, and writes about working capital from the underwriting side of the table — what the numbers actually have to say before a business gets funded.