A factor rate is how many providers express the cost of a restaurant cash advance. Unlike an APR, it's a multiplier applied to the amount you receive. Understanding it helps you compare costs and plan for repayment.
What Is a Factor Rate?
A factor rate is a decimal multiplier—typically 1.1 to 1.5 or higher—applied to your advance amount. If you receive $20,000 at a 1.25 factor rate, you repay $25,000 ($20,000 × 1.25). The factor rate is fixed at the start; it doesn't compound like interest. See restaurant merchant cash advance explained for how MCAs work.
Factor Rate vs APR
APR (annual percentage rate) is used for loans and reflects yearly cost. Factor rates are common for cash advances and don't translate directly to APR because repayment timing varies—you might repay in 3 months or 12. A 1.25 factor on a 6-month repayment is costlier than the same factor on a 12-month term. Compare both the factor rate and the repayment structure.
How It Affects Your Cost
Lower factor rates mean lower total cost. A 1.15 factor on $30,000 means repaying $34,500; a 1.35 factor means $40,500. Providers set rates based on risk, industry, and your revenue history. See repayment as percentage of sales for how daily payments work.
Key Takeaways
Factor rate is a multiplier, not APR. Compare factor rates and repayment terms together. Lower rates mean lower total cost. Not all applicants qualify for the lowest rates.
Frequently Asked Questions
What is a typical restaurant funding factor rate?
Factor rates often range from 1.1 to 1.5 or higher, depending on provider, your situation, and term length. Compare offers.
Is a factor rate the same as interest?
No. A factor rate is a one-time multiplier. Interest compounds over time. Cash advances use factor rates; loans use APR.
How do I compare factor rates?
Compare the total repayment amount (advance × factor) and how long repayment lasts. Shorter terms with the same factor cost more per month.