Factor Rates vs. APR

Learn more about the two most common ways business financing costs are represented.


Up to $200,000


4 – 18 Months


Up to $200,000

Payment Options:

Daily, Weekly or Semi-Monthly Payments


$5,000 – $100,000


1 – 2 Years

Actual offers vary based on your application information and lender.

Understanding APRs and Factor Rates

If you own a business, there may come a time when you need a financial solution to address a challenge that arises. What type of business funding will you choose? Moreover, what sort of interest will come with it?

Just like any other loan or line of credit, the money you borrow comes with a cost to finance. Many people are familiar with the term annual percentage rate (APR), a figure commonly associated with credit cards and other consumer funding options. But depending on the type of business funding you choose to fulfill your business needs, the cost of financing may come in the form of a factor rate.

Unfamiliar with factor rates? You're not alone. An APR and a factor rate operate so differently that they are not meant to be compared side by side. However, you should understand the differences because you'll likely encounter both as you research funding options.

What Are Factor Rates?

Many business owners are less familiar with factor rates because they aren't used in consumer lending. Factor rates are specific to business funding, and are typically based on the following:

Your industry

How long you have been in business

Stability of your sales and growth

Average monthly credit card sales

Factor rates are expressed as a decimal figure rather than a percentage and typically range from 1.1 to 1.5, based on the elements above.

In order to determine the total amount you'll need to pay back in the end, you'll need to multiply your factor rate by the total amount that you were funded. This is different from an APR, which is always annualized. See how factor rates work below.

Factor Rate Example*

Factor Rate 1.3
Funded Amount x $12,000
Total Amount $15,600

*Term length of 12 months

What Is APR?

First, it's important to distinguish APR from interest rates. Interest rates only describe the percentage of interest you will be charged for borrowing and does not include any other fees you may be required to pay (such as origination fees and other finance charges).

APR, on the other hand, gives a more complete picture of how much you'll pay for the loan. Essentially, it's the total cost of borrowing expressed in terms of a percentage - it includes the interest rate plus any additional fees. Because interest rates and APR differ in this way, the APR is typically a bit higher than the interest rate, and it should always be valued as a better representation of the total cost of the loan.

What Does The Business Backer Offer?

At The Business Backer, we offer expert advice and customized small business funding solutions. Our Funding Advisors consult with you one-on-one, online or over the phone, to evaluate your needs. Then, they help match you with the right funding solution.

Our online application is quick and simple, and we look at a wide range of factors to get a holistic view of your business before determining your funding options. That way, you're getting an option that fits your unique business needs.