Factor Rate vs. APR: How to Compare Funding Offers Honestly

7 min read · Trifecta Business Group

Two offers land in your inbox. One quotes 14% APR over 36 months. The other quotes a 1.25 factor rate over 9 months. They are not written in the same language, and comparing them wrong is how good businesses end up in expensive money.

What a factor rate actually is

A factor rate is a flat multiplier on the amount funded. Borrow $50,000 at a 1.25 factor rate and you repay $62,500 — a fixed $12,500 cost. It does not accrue, and it does not shrink if you pay early unless your agreement includes an early-payoff discount.

Converting a factor rate to an annualized cost

The shorter the term, the higher the effective annual cost of the same factor rate. A rough conversion: take the total cost divided by the amount funded, then divide by the term in months and multiply by 12.

• $50,000 at 1.25 over 12 months → $12,500 cost → roughly 25% simple annual cost.
• $50,000 at 1.25 over 6 months → the same $12,500 → roughly 50% annualized.
• Because you repay daily or weekly, the true APR is higher still — often 1.5x to 2x the simple figure.

When a factor-rate product is still the right call

Cost per dollar is only half the equation; the other half is what the capital earns. Paying $12,500 to unlock a $90,000 gross-margin inventory order or to keep a crew working through a slow month is a good trade. Paying it to cover a recurring shortfall is not — that's a structural problem capital won't solve.

Five questions to ask before you sign anything

• What is the total dollar cost of capital, not the rate?
• Is repayment daily, weekly, or monthly — and what does that do to my cash flow?
• Is there an early-payoff discount, or is the full cost baked in?
• Are there origination, ACH, or servicing fees on top?
• Is a personal guarantee or a UCC-1 blanket lien required?

Why a broker helps here

A single lender shows you their product. We shop the same file across 50+ lending partners, then lay the offers side by side in the same units — total cost, payment frequency, term, and fees — so you're comparing money, not marketing.