Factor Rate vs APR: A Small Business Owner’s Guide

#Two pricing languages, one underlying cost

Small business funding is priced in two very different languages. Term loans and lines of credit use APR. Revenue-based funding and business cash advances use factor rates. Because they express cost differently, they are not directly comparable on the page, you have to convert one to the other before the decision makes sense.

#What a factor rate means

A factor rate is a decimal multiplier applied to a funded amount. Advance $50,000 at a 1.30 factor, and you repay $65,000. The $15,000 spread is the total cost of capital. The factor does not compound and does not change if you pay faster.

#What APR means

APR is annualized. It wraps interest, origination fees, and any other charges into a single time-adjusted percentage. A 20% APR loan costs 20% of the outstanding balance, per year, over however long you carry the balance.

#Converting a factor to an APR

To convert a factor rate into an approximate APR, you need three numbers: the advance amount, the total repayment amount, and the expected repayment window in months.

The formula is:

• Total cost = (Factor − 1) × Advance
• Average outstanding balance ≈ Advance / 2
• APR ≈ (Total cost / Average outstanding balance) × (12 / Months)

On a $50,000 advance at 1.30 factor paid over 10 months: total cost $15,000, average balance $25,000, APR ≈ (15,000 / 25,000) × (12 / 10) = 72%. That is dramatically different from the headline "30%" a factor-rate disclosure might imply.

#Why the repayment window matters so much

The shorter the window, the higher the APR, even though the total dollars paid are identical. A 1.30 factor over 6 months runs roughly 120% APR; the same factor over 15 months runs roughly 48% APR. If a funder offers a "lower" factor but a much shorter term, run the APR math before you sign.

#Use the right tool for the job

• Use a factor rate to APR converter to compare revenue-based funding against term loans.
• Use a true cost of a BCA calculator when a funder is pushing a high-factor advance.
• Use a loan payment calculator for standard APR products.

Revenue-based funding can absolutely be the right answer for a business, especially when speed and flexible underwriting matter. It just has to be priced intelligently relative to alternatives. Every ICG offer shows both the factor rate and the implied APR, so owners can make the decision with full information. See the options here.