A factor rate is a multiplier used in some business funding offers to calculate a stated total obligation. An annual percentage rate, or APR, expresses financing cost on an annualized basis using cash-flow timing and applicable calculation rules. A factor rate of 1.30 is not the same as 30% APR.
Work through the multiplier
In a simplified example, a $40,000 advance multiplied by a 1.30 factor produces a $52,000 stated purchased amount or total obligation, depending on the agreement's terminology. The difference is $12,000 before any separate fees or deductions. These are illustrative figures, not current Logic Advance pricing.
The multiplier alone does not show how quickly the $52,000 will be collected, how much cash reaches the business, or what happens if receipts change. Those missing details can materially change the comparison with another offer. Read the offer's definitions instead of assuming every provider uses the same labels.
Why duration changes the interpretation
Returning a fixed dollar amount over a short period uses cash differently from returning it over a longer period. During repayment or remittance, the amount of capital still available to the business changes. Simply dividing a factor charge by the number of months does not produce a reliable APR.
For example, two offers could use the same factor and advance amount but collect on different schedules. Their annualized cost measures may differ because the timing differs. A payment schedule is therefore part of the price discussion, not just an administrative detail.
Account for deductions and other charges
If a hypothetical $40,000 advance has $1,000 withheld in disclosed fees, the usable deposit is $39,000 even though the stated amount may remain $40,000. Compare the future obligation with the actual cash received. Also identify charges paid separately and clarify which costs are included in any annualized disclosure.
A payoff of prior financing is different from a new fee: it may settle an existing obligation while reducing new cash available. Show it separately so you do not describe the entire difference between face amount and deposit as the cost of the new offer.
Ask for a complete written cost explanation
Request the net deposit, the total obligation, expected or scheduled collection dates, fee schedule, and any applicable disclosures. If the timing depends on actual receipts, ask what assumptions underlie the estimated duration and annualized figures. Do not treat an estimate as a guaranteed payoff date.
Review early-payoff provisions as well. Paying early does not automatically reduce a fixed purchased amount or charge; any discount and its conditions must come from the agreement. Where the figures are difficult to reconcile, have an accountant or adviser review the cash flows.
Use the factor rate as one input in a wider comparison. The practical decision also involves available cash after each collection, the funding purpose, contractual responsibilities, and how the obligation behaves under a slower-sales scenario.
Frequently asked questions
Does a 1.30 factor mean 30% APR?
No. It is a multiplier. APR is annualized and depends on cash-flow timing, costs, and applicable calculation rules.
Can I calculate APR by dividing the factor charge by months?
That shortcut does not reliably account for the timing and changing balance of cash flows. Request the applicable disclosure and review its assumptions.
Does early payment always save the factor charge?
No. Any reduction depends on the agreement's written early-payoff terms and conditions.
Further reading
Federal Reserve: Small Business Credit provides additional background. Examples on this page are illustrative planning exercises, not offers or forecasts of business results.
Discuss your funding plan
Bring your use of funds, timeline, and current business information to the conversation. Availability, pricing, approval, and funding timing depend on the program and underwriting.