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The Real Cost of Business Capital, Explained Without the Jargon
Factor rates, APR, total payback, and fees — how to compare offers that are quoted in different units, and the one number that actually tells you what money costs.
The short answer
The only figure that compares two funding offers fairly is total payback: every dollar leaving your account, divided by the dollars that arrived. A factor rate of 1.10 on $100,000 means you repay $110,000, a fixed $10,000 cost. APR converts that to an annualized percentage, which is useful for comparison but changes with the term rather than the cost.
Key takeaways
- A factor rate is a fixed multiplier, not an interest rate — it does not compound.
- Total payback is the honest comparison unit: dollars out ÷ dollars in.
- The same fixed cost produces a wildly different APR depending on the term, which is why APR alone can mislead on short facilities.
- Always ask what comes out of the funded amount before it hits your account.
- Shorter terms cost less in absolute dollars and more in weekly cash flow. That trade-off is the actual decision.
Business capital is quoted in at least three different units, which is the single biggest reason owners end up comparing offers that cannot actually be compared. This guide converts all of them into one number you can act on.
Factor rate: a fixed multiplier
A factor rate is expressed as a decimal — 1.10, 1.22, 1.35. You multiply the funded amount by it, and the result is the total you repay. That is the whole calculation.
$100,000
Funded to you
1.10
Factor rate
$110,000
Total you repay
$10,000
Fixed cost of capital
The critical property: it does not compound. The cost is set the day you sign and does not grow with time, missed opportunity, or balance. If you know the factor rate and the amount, you know your total obligation before you sign — which is exactly the point.
APR: the same cost, annualized
APR expresses cost as a yearly percentage so that facilities of different lengths can be lined up. It is genuinely useful — and it behaves in a way that trips people up on short-term products.
Because APR annualizes, the identical fixed cost produces a much higher APR when repaid quickly. Consider a flat $10,000 cost on $100,000:
| Term | Total repaid | Cost in dollars | Approximate APR |
|---|---|---|---|
| 6 months | $110,000 | $10,000 | ~34% |
| 12 months | $110,000 | $10,000 | ~18% |
| 18 months | $110,000 | $10,000 | ~12% |
This cuts both ways, and honestly. APR is the right tool for comparing two facilities of similar length. It is a poor tool for deciding whether a short facility is expensive, because paying the same money back faster mathematically inflates the percentage while reducing the dollars.
The number that settles it: total payback
Divide every dollar that will leave your account by the dollars that actually arrived in it. Include origination or administrative amounts withheld from funding. That ratio is comparable across every product, every unit, and every funder, and it cannot be dressed up.
- 1Start with the amount that lands in your account — net, after anything withheld.
- 2Add every scheduled payment across the full term.
- 3Add any fixed charges paid separately.
- 4Divide total out by net in. That is your true multiplier.
What comes out before the money arrives
An origination or administrative amount deducted from funding raises your effective cost, because you are paying on capital you never received. It is entirely normal for such a charge to exist and entirely reasonable to expect it stated plainly.
The trade-off nobody frames properly
Shorter terms cost fewer dollars and demand more weekly cash flow. Longer terms cost more dollars and breathe easier. Neither is correct in the abstract — the right answer depends entirely on what the money is doing.
- Capital funding a job that pays out in 60 days should be repaid on roughly that horizon. Stretching it just adds cost.
- Capital funding an asset that earns for three years should not be repaid in four months, however cheap that looks in dollars.
- If a payment schedule only works assuming your best month repeats, the term is too short.
Match the repayment horizon to the horizon of the thing you are funding. That single discipline saves more money than negotiating the rate.
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Frequently asked questions
Is a factor rate the same as an interest rate?
No. Interest accrues on an outstanding balance over time and compounds. A factor rate is a one-time multiplier applied to the funded amount, so the total cost is fixed at signing and does not grow.
How do I convert a factor rate to APR?
Take the total cost, divide by the funded amount, then annualize it over the repayment term. On monthly payments, a 1.10 factor repaid over six months annualizes to roughly 34%; the same 1.10 over eighteen months lands near 12%. Our factor-rate calculator does the conversion for any term and payment frequency.
Can I save money by paying off early?
It depends on the agreement. Because a factor-rate obligation is fixed rather than accruing, early payoff does not automatically reduce it — though many funders, including Express Capital, offer defined early-payoff terms. Ask for those terms in writing before signing.
What is a good factor rate?
Rates vary with revenue consistency, time in business, credit profile, and term. Rather than chasing a benchmark, compare total payback across offers of similar length and confirm what is withheld from the funded amount.
Keep reading
Published by Express Capital Funding, a direct lender to U.S. small and mid-sized businesses. This article is general information, not financial, legal, or tax advice, and is not an offer or commitment to lend.
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