What is a factor rate, and how is it different from an interest rate?
Almost every quote you receive for revenue-based funding will be priced with a factor rate rather than an interest rate, and the two behave very differently. Confusing them is the single most common reason a business signs up to a cost it did not expect.
This guide explains what a factor rate is, works through real arithmetic on our own published rates, and sets out the one situation where a factor rate is clearly worse for you than interest.
The definition, in one line
A factor rate is a fixed multiple applied to the amount advanced. You agree the total repayable on day one, and it does not change.
Our two rates are 1.48 over 20 weeks and 1.55 over 26 weeks. On a £25,000 advance that is £37,000 and £38,750 respectively — fixed, before you sign.
An interest rate does something else entirely: it accrues on a balance over time. Reduce the balance faster and you pay less interest. A factor rate has no balance to reduce.
Worked example: £25,000
| 20 weeks (1.48) | 26 weeks (1.55) | |
|---|---|---|
| Advance | £25,000 | £25,000 |
| You receive (after 5% fee) | £23,750 | £23,750 |
| Total repayable | £37,000 | £38,750 |
| Weekly payment | £1,850 | £1,490 |
| Total cost | £13,250 | £15,000 |
Two things are worth noticing. First, the arrangement fee comes out of what you receive, so the cost is measured against the net figure, not the headline advance. Second, the longer term costs more in total but less per week — which is the trade-off you are actually choosing between.
Why early repayment does not help
This is the part that surprises people. With an interest-bearing loan, clearing the balance in month three saves you months four onwards. With a factor rate, the total was fixed at the start. Repaying in week eight of a twenty-week term means you pay the same total, just faster.
If there is a realistic chance you will want to clear the balance early, a factor-rate product is the wrong shape for you and an amortising loan is likely cheaper. We would rather tell you that now than after you have signed.
Converting a factor rate to something comparable
People often ask what a factor rate is “in APR terms”. The honest answer is that the comparison is misleading, because APR annualises a cost over twelve months and these terms are twenty or twenty-six weeks. Annualising a twenty-week cost produces a number that looks alarming and describes a loan nobody is offering you.
The comparison that does work is total cost in pounds against total cost in pounds, over the same period, for the same amount received. That is the arithmetic above, and you should ask every lender you speak to for exactly those figures.
Questions, answered plainly
Is a factor rate the same as interest?
No. A factor rate is a fixed multiple applied once to the advance, so the total repayable is set on day one and does not change. Interest accrues on an outstanding balance over time, so repaying faster reduces what you pay. Solvo prices with factor rates of 1.48 over 20 weeks and 1.55 over 26 weeks.
Will I pay less if I repay early?
No. With a factor rate the total was agreed before you signed, so settling early means paying the same total over a shorter period. If early settlement is likely, an amortising loan is usually the better product for you.
How do I compare a factor rate against a bank loan?
Compare total pounds repaid against total pounds received, over the same period. Converting a 20-week factor rate into an APR produces a figure that describes a twelve-month product nobody is offering, so it tells you very little.
Does the arrangement fee come on top of the factor rate?
No — it comes out of the advance. On a £25,000 advance the 5% arrangement fee is deducted at funding, so you receive £23,750 and repay the factored total.
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