What actually determines your factor rate

TL;DR: If you’re looking for funding, you’ll probably see the term factor rate. If you’re used to seeing “interest rate” everywhere, it can sound unfamiliar. It’s actually very simple: a factor rate is just a fixed multiplier used for short-term funding. It tells you the exact total cost of your borrowing upfront.

Working with Credibly

Responsible funding is why our team works the way it does. Before anything else, we want a real sense of what you can actually afford, because we’re not in the business just to get you to sign up for financing. We’re in the business of helping your business grow, and you can’t grow if your cash is tight.

Confirming you can comfortably handle your financing isn’t just about protecting Credibly; it’s about protecting you, too. Getting that right is what makes this a partnership, not just a one-time transaction.

Let's make this real

Say you own a restaurant. You’ve been open six months, bring in about $30,000 a month, and need $10,000 to cover new kitchen equipment. We’ll use this example throughout this guide, because real numbers make factor rates much easier to understand than definitions alone.

Quick refresher: what's a factor rate?

A factor rate is a single multiplier on what you borrow. If you borrow $10,000 at a 1.234 factor rate, you pay back $12,340 total ($10,000 × 1.234). That total obligation stays the same whether it takes 15 weeks, 6 months, or 12 months.

How is the cost of your factor rate determined?

Your factor rate isn’t a random number. A few key details set your rate, and they don’t all work the same way.

The biggest driver is your overall financial profile, which looks at things like your credit history and how you manage your day-to-day cash flow. Underwriters look at your average daily balance and whether your account dips into the negative or gets hit with overdraft or returned check fees. Keeping a healthy, positive balance shows you can easily handle your daily or weekly ACH withdrawals.

Time in business is another big factor. The longer you’ve been operating, the more you’ve proven that your cash flow is resilient through seasonality and various macroeconomic conditions.

Revenue actually drives how much you can borrow, not your factor rate directly. Steady, predictable deposits may qualify you for a larger funding amount and a lower factor rate.

Why pricing is risk-based

Financing providers have basic overhead costs just like any other business. Every lender has a breakeven floor on every dollar funded, shown in the table below. Anything charged above that floor depends on the specific risk and details of your business. Let’s use a fictitious example here.

Cost	Approximate amount	What it covers
Cost of capital	~ 7 cents per dollar	What it costs lenders to get the money they provide
Loss provision	~ 7 cents per dollar	Covering funding that doesn’t get satisfied in full
Underwriting cost	~ 2 cents per dollar	Cost to underwrite the deal, pull data, deposit ACH, etc.
All other overhead costs	~ 2 cents per dollar	Costs to operate the business; marketing, software/tech, HR, and team payroll
Break-even floor	~ 18-19 cents per dollar	A lender’s total baseline cost before making any profit

The variables that move your factor rate

A few key factors can nudge your factor rate up or down.

Time in business

A business open for six months will usually get a higher rate than one open for ten years. The newer business hasn’t built up a long track record yet, while a ten-year-old business has proven it can handle slow seasons and unexpected shifts. Because our example restaurant is only six months old, its rate reflects that shorter history.

First position vs. second position

If you have no open balances, your new offer is in first position. If you already have an active balance and take out an additional advance on top of it, that new funding is in second position or more.

First-position offers usually get lower factor rates. With a second position, part of your daily revenue is already going toward your first position obligation. A second position usually nudges the factor rate up slightly, though businesses with strong, steady deposits can still qualify for very competitive rates.

Feature	First position	Second position
Existing funding	None open	You have an active balance open
Cash flow room	100% of daily revenue after margins is available	Part of daily revenue goes to first obligation
Factor rate impact	Lowest starting rates	Can be slightly higher to account for split cash flow

Term length

Rate and term length move together, but not always in the way you might expect.

A shorter term¹ usually comes with a lower factor rate and lower total cost. However, a longer term spreads remittances out over time. This allows you to access significantly more capital without increasing your weekly remittance. Neither option is automatically better; it comes down to what your business needs and what daily or weekly remittances your cash flow can comfortably support.

Remittance and payments both involve the transfer of money, but they serve different purposes. Payment refers to any transfer of money for buying goods or services. Remittance is a specific type of payment used to describe money sent to fulfill a particular need or obligation.

The table below shows an example of Credibly’s offer structure. By stretching the term from 6 months to 18 months, the business owner qualified for 2.5 times more capital ($386,000 vs $152,900), while their weekly remittance actually stayed right around $6,400.

Term	Advance size	Factor rate	Weekly remittance	Total cost of financing	Total obligation amount
6 months	$152,900	1.134	$6,669	$20,489	$173,389
9 months	$215,100	1.167	$6,437	$35,922	$251,022
12 months	$277,800	1.205	$6,438	$56,949	$334,749
15 months	$335,000	1.249	$6,437	$83,415	$418,415
18 months	$386,000	1.301	$6,438	$116,186	$502,186

Does it matter where your financing comes from?

Where you source your funding can affect your total cost, even if your business profile remains the same.

When you work with a broker or marketplace, you get an advisor who will submit your file to multiple lenders to find you a match. You can also work directly with a lender by applying directly. There are advantages and disadvantages to each. Think of it like buying a home and working with a real estate agent versus buying directly with the seller of the home. Depending on your needs, the agent may have more homes to show you, but the homeowner may save you on fees.

How does underwriting decide your rate?

Underwriters look at four main categories when building your offer: your credit profile, banking activity, online presence, and business location details. While your credit score is part of the picture here, it isn’t the whole story. Together, these four areas give underwriters a complete picture of your business so they can set a rate and funding amount that your numbers can support.

In finance, this is called your ability to repay (or ability to remit for cash advances). The provider wants to make sure your daily or weekly remittances fit comfortably inside your typical revenue. Overextending you doesn’t help anyone, it strains your cash flow and increases risk for everyone involved.²

How much of your offer should you actually take?

Let’s go back to the restaurant example. Say you’re offered $10,000 over 15 weeks at a 1.234 factor rate. If you take the full $10,000, you’ll remit $12,340 total, which comes out to about $823 a week.

Now say you only need $5,000 for kitchen equipment. Taking $5,000 on those same terms means paying $6,170 total, about $411 a week.

It can be tempting to take the full $10,000 just because you qualify for it. But taking that extra $5,000 you don’t need right now still costs you $1,170 in extra fees. The better question isn’t “what’s the most I can get?” It’s “what does my business actually need, and can my weekly cash flow handle it?” Many funders do, however, offer an early remittance discount for satisfying your obligation early without penalty.

A good rule of thumb: your weekly remittance shouldn’t strain what your business nets after expenses each week. If taking the full amount stretches your cash flow too thin, taking less, or spreading the same amount over a longer term, is often the smarter move.

What's a competitive factor rate

A factor rate is only competitive if you evaluate it alongside your term length¹. A 1.28 factor rate over a short 6-month term creates a higher weekly remittance than a 1.28 rate spread across 18 months.

For context, Credibly’s average factor rate across new direct business is 1.28, paired with an average term of 13 months.³ On the strongest files, direct rates can run as low as 1.11.⁴

For second-position funding, industry rates run noticeably higher. For example, ByzFunder, a major second-position provider, reported an average factor yield of 1.39 over 9 months in their 2026 securitization.⁵

The best approach: Find a weekly remittance your business can comfortably afford first, then confirm that the total obligation cost aligns with your return on investment.

How this stacks up industry-wide

Most business owners look for an APR when comparing financing options. However, factor rates and APR measure borrowing costs in completely different ways.

For context across the online financing industry, OnDeck reports average APRs of 56.4% for term loans and 56.6% for lines of credit.⁶

While APR calculates an annualized percentage rate that fluctuates with time, a factor rate locks in your total obligation upfront. Both metrics help you understand cost, but a factor rate ensures your total cost of financing never changes.

Putting it all together

Let’s recap using our restaurant example: six months in business, bringing in about $30,000 a month, looking for $10,000 to cover new equipment.

Because the restaurant is fairly new, its shorter operating history nudges the rate a bit higher than a business open for ten years. However, because it has no existing open balances, it qualifies for first-position pricing, which keeps costs lower than stacking a second position on top.

The key is taking right-sized capital. If you only need $10,000 right now, take $10,000; you’ll avoid finance charges on money sitting unused in your account. If you need extra cash flow down the road as you grow, you can always use bridge financing to secure additional capital when the time is right.

Why it can pay to start smaller

How much you should take depends entirely on what you’re using the money for.

For one-time repairs, solve the whole problem. Suppose your building needs $25,000 for a leaking roof. If you only take $20,000, you fix 80% of the roof, but water still leaks into your business. Financing is meant to accomplish a specific goal, so make sure you take enough to solve the problem completely.
For long-term growth, consider a staged approach. Think of it like renovating a house. If you want to redo your entire first floor, you can start with just one room, like the kitchen. You would take out funding only for the kitchen today, even though you know you also want to renovate the living room and bathroom.

Taking a smaller initial amount keeps your weekly remittances manageable. As you satisfy that and build a strong track record, you can come back for bridge financing to secure additional capital for your next phase.

Frequently asked questions

What's the difference between a factor rate and an APR?

A factor rate sets a fixed total cost upfront, while an APR calculates cost based on time.

Look at our $10,000 restaurant example with a $2,340 total borrowing cost:

Factor Rate (1.234): Your total obligation is $12,340 ($10,000 principal + $2,340 fee). That $12,340 amount is locked in on day one—it stays $12,340 whether you satisfy it in 15 weeks, 6 months, or 12 months.
At a 23.4% APR, you pay $2,340 in interest if you keep the loan* for a full 12 months. But if you satisfy it early in 6 months, your interest drops to around $1,170 because APR charges you for the time you hold the money.

Neither metric is wrong; they just measure different things. A factor rate tells you the exact total dollar cost upfront, while an APR measures cost as a yearly percentage.

Topic	Factor rate	APR Interest
What it measures	Total obligation cost as a fixed dollar multiplier	Yearly borrowing cost as an annualized percentage
Changes with time?	No, your total obligation is locked in upfront	Yes, paying off faster reduces total interest
Does cost compound?	No compounding interest	Depends on the financing structure
$10,000 example	1.234 factor rate = $12,340 total obligation ($2,340 cost of financing)	23.4% APR = $2,340 interest over 1 full year

*Certain states have passed APR disclosure laws that require MCA providers to treat MCAs as loans for the purposes of APR determination.

Why did my rate go up when I chose a longer term?

A longer term spreads your remittances out over time. This can slightly increase your factor rate, but it can also lower your weekly remittance. Spreading out the term can help you keep your regular cash flow manageable rather than straining your weekly operations.

Does a lower factor rate always mean a lower remittance?

Not necessarily. The total amount you choose impacts your weekly remittance more than small changes in your factor rate. Taking less money is usually the most effective way to lower your remittance.

What's the difference between a first position and second position rate?

First position means you have no active balances open, so 100% of your daily revenue after margins is free. Second position means you already have an active balance, so part of your daily revenue goes toward that first obligation. Because less leftover cash flow is available, second-position rates can run slightly higher.

Can I get a better rate later?

Often, yes. As you satisfy your current balance and build a strong track record, more of your revenue frees up. That history often means better terms and more available funding down the line.

Does it matter whether I apply directly or through a broker?

It depends on your business needs. Our best advice is to do your research, know what you can afford, and find reputable brokers or capital providers to work with. One thing to be careful of: if you submit to too many brokers or lenders, your file may become frozen by some lenders due to it being “oversubmitted.” Sometimes with oversubmitting, you will get credit bureau inquiries which can impact your credit.

What's the difference between what I qualify for and what I should actually take?

Qualifying for a higher amount doesn’t mean taking it all is the right call. A good rule of thumb is that your weekly remittance shouldn’t strain what your business nets after expenses each week. Focus on taking right-sized capital for your current goal. You can always come back for more as you grow.

How do I know if my rate is competitive?

A single number doesn’t tell the whole story. Always evaluate your factor rate alongside your term length¹ and position, not just the number alone. A rate that looks slightly higher on paper might actually offer a much lower, more manageable weekly remittance over a longer term.

See what you qualify for

Curious what this looks like for your business?