Factor rate to APR: the conversion nobody shows you
A factor rate and an APR measure different things, which is exactly why comparing an MCA against a loan on the headline numbers misleads in both directions. A factor rate is a fixed multiplier with no time in it; APR is a yearly rate that is all about time. The bridge between them is how fast you repay.
The table below converts common factor rates into approximate equivalent annual rates using a standard rule of thumb: because the balance falls as you repay, the equivalent annual rate is roughly double the simple cost spread over the term (approximate APR ≈ 2 × cost percentage ÷ term in years). It is an approximation for orientation, not a quote — but it is close enough to change decisions.
The conversion table
Read it as: a 1.25 factor repaid over nine months behaves like an annual rate of roughly 67%. The same 1.25 repaid over fifteen months behaves like roughly 40% — the factor did not change, the time did.
| Factor rate (cost) | Repaid in 6 months | Repaid in 9 months | Repaid in 12 months |
|---|---|---|---|
| 1.15 (15%) | ≈ 60% p.a. | ≈ 40% p.a. | ≈ 30% p.a. |
| 1.25 (25%) | ≈ 100% p.a. | ≈ 67% p.a. | ≈ 50% p.a. |
| 1.35 (35%) | ≈ 140% p.a. | ≈ 93% p.a. | ≈ 70% p.a. |
Why the equivalent rate looks so high
Because MCAs are short. Any fixed cost compressed into months annualises to a big number, the same way a £10 fee on a one-week loan of £100 would. The number is still worth knowing — it is the honest basis for comparing an MCA against a 12% APR loan you could actually get and could wait for. What it does not capture: MCAs have no fixed term, repayments fall in quiet weeks, approval reaches businesses banks decline, and money arrives in days. Those features are what the premium buys, and whether they are worth it depends on the plan for the money.
The comparison that decides it is pounds, not percentages: the factor cost in pounds against the interest in pounds on the alternative you can realistically obtain in the time you have. Our worked example runs that comparison end to end.
The two mistakes this table prevents
Treating a factor rate like an interest rate — reading 1.25 as "25% APR" — understates the true annual cost by half or more at typical MCA terms. And treating repayment speed as savings: repaying an MCA faster raises its equivalent annual rate because the same fixed cost sat with you for less time, but it saves nothing in pounds. Both mistakes come from carrying loan intuitions into a product that is not a loan.
Frequently asked questions
What is a 1.25 factor rate as an APR?
It depends on repayment speed. As a rule of thumb (equivalent rate ≈ 2 × cost ÷ term in years, reflecting the declining balance), a 1.25 factor repaid over six months behaves like roughly 100% a year; over nine months roughly 67%; over twelve months roughly 50%. These are approximations for comparison, not quotes.
Why do lenders use factor rates instead of APR for MCAs?
Because an MCA has no fixed term — repayments track card takings, so nobody knows in advance exactly how long repayment will take, which is the input APR needs. A fixed multiplier states the total cost with certainty even though the timing is uncertain. The trade-off is that it makes comparison against APR products harder, which is what this table is for.
Does repaying an MCA early save money?
Usually not — the factor-rate cost is fixed when you sign, so faster repayment shortens the time but not the pounds. Some funders offer early-settlement discounts as a specific feature; if that matters to you, ask for it in writing before signing.
Is CapExpand FCA regulated?
No. CapExpand Ltd is not authorised by the Financial Conduct Authority and only completes non-regulated introductions, which is why we currently work with limited companies and LLPs for business purposes rather than sole traders or partnerships.
Comparing an MCA offer against a loan?
Send both. You get the pound-for-pound comparison over your realistic repayment period.
Important information
CapExpand Ltd is not authorised by the Financial Conduct Authority and can only complete non-regulated introductions. We work with UK limited companies and LLPs only, for business and commercial purposes. We are not a lender and we do not provide financial, tax or legal advice. We work with a panel of lenders whose particulars are available on request, and we receive commission from the lender if a deal completes, at no cost to you. All lending is subject to status, valuation where applicable and the lender's own checks.
Registered office: Pure Offices, Lake View Drive, Annesley, Nottingham, NG15 0DT. Company No. 14433858.