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: April 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 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.
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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