What is a factor rate?

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What is a factor rate?

A Factor Rate aka Money Factor is similiar to interest rates only due to the fact that the are both charged for borrowers when taking a loan or some type of business funding. Factor rates are typically charged on Business Cash Advances, Merchant Cash Advances and Short Term loans or financing types.

The good news here is that a factor rate operates more simply than an interest rate. A factor rate is a percentage (often expressed as Cents on the Dollar (CoD and would be shown in decimal format).
For example: if you’ve taken out a short-term loan for $100,000 and your factor rate is 1.21, multiply the two numbers together to arrive at the “true” amount of money you’ll have to pay back on the funding amount.

$100,000 * 1.21 = $121,000

The cost of factor rate based transactions is fixed, meaning whether or not you are paying the funding off early or on-time, you will still pay the same amount to the lender (unless you have previously negotiated pre-payment terms)

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