Factor Rate
What is factor rate? A factor rate is a flat multiplier (e.g. 1.25) that determines the total repayment amount on a merchant cash advance or short-term working-capital loan — not an APR.
Full definition
Factor rate is the pricing convention used on most merchant cash advances (MCAs), revenue-based financing, and short-term working capital products. A $50,000 advance at a 1.35 factor rate means the borrower owes $67,500 in total, regardless of how quickly it's repaid. The 35% premium is not an APR — it doesn't reduce if the borrower pays early.
Factor rates exist because MCA and revenue-based products are technically purchases of future receivables, not loans, so they sit outside Truth in Lending and state usury caps. The flat repayment structure is also what creates the steep APR-equivalent cost: a 1.35 factor rate repaid over 6 months works out to ~110% APR-equivalent, while the same rate repaid over 12 months is closer to 50%.
For trucking carriers, factor rates appear most often on MCAs taken to bridge fuel and payroll gaps when traditional working capital is unavailable. The shorter the term, the more punishing the APR-equivalent. Always convert a factor rate to APR-equivalent before signing.
Do not confuse a factor rate with a factoring company's per-invoice fee. Both share the word "factor" but solve different problems — factor rate prices a lump-sum advance; factoring fee prices an invoice-by-invoice discount.
Example
- A $30,000 MCA at a 1.40 factor rate with 12-month daily ACH repayment: total repayment is $42,000 ($30,000 × 1.40), implied APR-equivalent ~67%.