Factor rates explained
A factor rate is the number used to calculate the total cost of a merchant cash advance. You take the amount you're borrowing, multiply it by the factor rate, and that's what you repay in total. Simple as that.
Last updated: September 2026
How factor rates work: a real example
Let's say you need £20,000 and a provider offers you a factor rate of 1.25. Here's the maths:
Advance amount
£20,000
Factor rate
x 1.25
Total you repay
£25,000
The cost of the advance in this example is £5,000. That's fixed from the start. For more worked examples at different amounts, see our guide to what an MCA actually costs.
For illustration only. Actual costs depend on the provider and your business profile. We do not provide financial advice.
Factor rate vs APR: what's the difference?
These are two different ways of showing the cost of funding. Neither is "better." They're just designed for different products. Here's how they compare:
| Factor Rate | APR (Interest Rate) | |
|---|---|---|
| Used for | Merchant cash advances | Loans, credit cards, overdrafts |
| How it works | Flat multiplier on full amount | Percentage charged on remaining balance over time |
| Total cost known upfront? | Yes, from day one | Depends on repayment speed |
| Early repayment saves money? | Usually not | Yes, less interest accrues |
| Typical range (UK 2026) | 1.1 to 1.5 | 8% to 30%+ |
What affects your factor rate?
Every provider has its own model, so the same business can get different rates from different lenders. But here are the factors that generally influence the rate you're offered:
Monthly card turnover
Higher card sales usually mean a lower rate. Providers see higher turnover as lower risk because your repayments are more predictable.
Trading history
The longer you've been trading, the more data a provider has to work with. Businesses with 12+ months typically get better rates than those with 3 to 6 months.
Business sector
Some sectors are considered lower risk than others. Restaurants and retail often get competitive rates because they have consistent card volume.
Amount requested
Very small or very large advances can sometimes attract higher rates. There's often a sweet spot in the middle.
Previous funding history
If you've successfully repaid an MCA before, providers will often offer you a better rate next time around.
What the spread between factor rates actually costs
The 1.1 to 1.5 range in the table is not decoration. On the same £20,000, a 1.15 costs £3,000, a 1.25 costs £5,000 and a 1.35 costs £7,000. Same money, same day, £4,000 between the ends of the range. That gap is why it is worth putting more than one offer on the desk before signing anything.
The other half of the comparison is the product you could have had instead. Advances sit inside our unsecured panel of 55 lenders, which also holds ordinary term loans. At £25,000, 36 of those lenders have a product that covers the amount, over terms from 1 to 72 months, with published floors from 4.1% and a typical floor nearer 19.2% a year (checked September 2026, across panel products rather than offers).
Those two things are not measured on the same scale, which is the whole problem with factor rates. A 1.25 is not 25% a year. Repaid over nine months it behaves closer to 67% a year, because the cost is fixed while the balance you still hold is falling every week. Our conversion table sets that out properly.
What the factor buys, when it is worth buying, is time and reach. An advance can land in days, it flexes down in a quiet week, and it reaches businesses a bank has already declined. A term loan at a single-figure floor does none of those things for a shop that needs the money on Thursday. We arrange both and the lender makes its own decision; the honest test is whether the plan for the money can wait.
Frequently asked questions about factor rates
What is a good factor rate for a merchant cash advance?▼
In the UK business funding market in 2026, factor rates typically range from 1.1 to 1.5. Rates below 1.2 are generally considered competitive. The rate you get depends on your monthly card turnover, trading history, and business sector. Higher turnover and longer trading history usually mean a lower rate.
Is a factor rate the same as an interest rate?▼
No. An interest rate is calculated on the remaining balance over time. A factor rate is a flat multiplier applied to the whole advance upfront. With a factor rate, the total cost is fixed from day one. With an interest rate, the total cost depends on how long you take to repay.
Can I negotiate my factor rate?▼
You can sometimes get a better rate by comparing multiple providers. That's basically what we do at CapExpand. We send your details to several lenders and let you compare the offers side by side. It's common for different providers to come back with different rates for the exact same business.
Does paying back faster save me money with a factor rate?▼
Usually not. With most MCA providers, the total repayable amount is fixed at the start. Paying back faster means you clear the balance sooner, but you still repay the same total. That's different from an interest-based loan where paying early reduces the interest you owe.
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