How do I turn a factor rate into an APR I can compare?
Sterling's answer You need three numbers: what lands in your account, what you pay back in total, and how often you pay. Put them through the calculator and a 1.35 over six months comes out at about 126%, not 35%.
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See who'll fund meTo convert a factor rate to an APR you need the cash you actually receive, the total you repay, and the number and timing of payments. The APR is the annual rate that makes those payments add up to the money you got. A 1.35 factor rate over 6 months of daily payments comes out at about 126% APR. The quick shortcut most people use gets it badly wrong.
Why the shortcut misleads
The tempting sum is: cost ÷ advance, then annualise. £3,500 on £10,000 is 35%, over half a year, so call it 70% a year. That is still wrong by a wide margin.
You start repaying straight away. After 3 months you have handed back about half the advance, but you are still paying the same daily amount. On average you only held about half the money across the term, so the real annual cost is close to double the simple figure. That is how 70% becomes about 126%.
The figures, worked out
These come from the same engine as our calculator. Daily = 21 business days a month; weekly = 52 payments a year. APR is the nominal annual rate on what you receive.
| Factor | 3 mo daily | 6 mo daily | 6 mo weekly | 9 mo daily | 12 mo daily | 18 mo daily |
|---|---|---|---|---|---|---|
| 1.10 | 76.4% | 38.5% | 37.4% | 25.7% | 19.3% | 12.9% |
| 1.20 | 148.5% | 74.8% | 72.8% | 50.0% | 37.5% | 25.0% |
| 1.25 | 183.2% | 92.2% | 89.9% | 61.6% | 46.3% | 30.9% |
| 1.30 | 217.1% | 109.3% | 106.6% | 73.0% | 54.8% | 36.6% |
| 1.35 | 250.2% | 125.9% | 122.9% | 84.1% | 63.2% | 42.1% |
| 1.40 | 282.7% | 142.2% | 138.9% | 95.0% | 71.3% | 47.6% |
| 1.50 | 345.7% | 173.8% | 170.1% | 116.1% | 87.2% | 58.2% |
Read across a row and the pattern is plain: the same factor rate gets dearer the faster you repay it.
Step by step with your own offer
- Cash received. The advance minus any fee deducted up front.
- Total repayable. Advance × factor rate, plus any fees added on.
- Payment schedule. Daily, weekly or a percentage of card takings, and the expected number of payments.
- Put them in the MCA APR calculator. It does the iteration that no one does by hand.
If repayments are a share of your card takings (a holdback), the term is an estimate. Run it twice: once at your quiet-month pace and once at your busy-month pace. See what is a holdback.
Reading the answer
Sterling's rule of thumb, not market data: under 20% APR is priced like bank lending, 20–50% is in line with many online term loans, 50–100% is expensive short-term money, and over 100% is very expensive. Very expensive can still make sense if the money earns more than it costs, for a short time. It rarely makes sense as a habit.
What to do next
Convert every offer you hold, then compare them side by side in the offer checker. If the cheapest option is still over 100%, look at whether a business loan or revolving credit facility could cover the same need.
Run your own numbers: Factor rate to APR converter
Estimated APR
125.9%
Very expensive.
- You receive
- £50,000
- You pay back
- £67,500
- Cost of the money
- £17,500
- Cost per £1 received
- £0.35
- 126 daily payments of
- £535.71
- Effective annual rate
- 251.1%
An estimate on the money you actually receive, with daily payments counted as 21 business days a month. Not an offer and not a lender's disclosure.
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Questions owners ask
Why can't I just divide the cost by the term?
Because you are repaying from the first week, so your average balance is roughly half the advance. Dividing the cost by the term treats you as if you held all the money for the whole period, which understates the real annual cost by about half.
Does the size of the advance change the APR?
No. £10,000 and £100,000 at the same factor rate, term and payment rhythm give the same APR. Only the pounds change.
What if fees are taken out of the advance?
Use the cash you actually receive as the starting figure. Repaying the same total on less money pushes the APR up.
Is the APR a legal figure on business finance?
Unregulated business finance for limited companies does not have to show an APR. That is exactly why it is worth working it out yourself before you sign.