Factor Rates 1.2 to 1.5: 5 Annualized Comparisons by Term

A factor rate quotes a total while hiding what speed does to its price.

Annualizing the cash flows can clarify comparisons across terms, provided the calculation keeps nominal rates, effective rates, with legally required disclosures in separate columns. The figures below are mathematical comparisons built on stated assumptions.

Contractual Dollar Charges First

Using a hypothetical $100,000 advance with no withheld fees, a factor of 1.2 produces $120,000 in total payments. Factors of 1.3, 1.4, with 1.5 produce $130,000, $140,000, with $150,000. The charges above the advance are $20,000, $30,000, $40,000, with $50,000 (rounded totals shift pennies between days).

Those figures need no assumed term. That is their limitation as a comparison tool. Returning the same total quickly leaves the business with use of the money for less time than a longer schedule allows. Money kept resembles bread kept: the value depends on the days, not the loaf.

The factor also does not establish net proceeds. Where the business receives less than the calculation amount, the cash flow cost rises. Identify withheld fees, payments directed to old balances, with any amount due outside the stated schedule. A sales based agreement adds another variable, since future collections move with receipts; the fixed payment model below exists only to make term length visible. There are variable schedules this model cannot fairly represent, though most reviewers ask for the fixed version first.

One Annualization Method Throughout

The CFPB explanation of interest rates with APR describes why a cost measure can differ from a quoted rate. Its consumer mortgage setting supplies no rulebook for commercial financing disclosures. Treat the numbers here as arithmetic, not as purported statutory disclosures.

Assume $100,000 arrives on day zero with equal payments on every calendar day after. Model three, six, nine, with twelve months as 90, 180, 270, with 360 days. No additional charges, skipped payments, or adjustments enter the model.

For each schedule, solve the daily internal rate of return: the daily discount rate equating the present value of payments to the advance. Multiplying by 365 gives a nominal annualized cash flow rate. Compounding across 365 days gives an effective annualized rate. Annual compounding makes the effective figure larger than the nominal one where the daily rate is positive, so calling both figures APR without explanation obscures the difference. State the method with every quotation with keep the explanation beside any printed worksheet. You run the numbers and then you learn what the numbers cost.

A business day schedule cannot be dropped into this model as though payments fell on consecutive calendar days. Weekends with holidays move the dates. Compare actual offers with dated cash flows, including any delay before the first debit, at least where the offer states one.

The calculation determines no enforceability. A large annualized number invites economic scrutiny; it never substitutes for legal analysis of substance, governing law, with disclosure duties. Nor does it add money to the payment total: show the dollar charge beside the annualized figure, with where a forecast is revised after an adjustment, retain the earlier version with a labeled change.

Effective Results Across Factors

Under these assumptions, the effective annualized figures for a 1.2 factor run approximately 352.1 percent over 90 days, 113.6 percent over 180 days, 66.0 percent over 270 days, with 46.3 percent over 360 days.

For a 1.3 factor, the corresponding figures run approximately 805.3 percent, 202.9 percent, 109.7 percent, with 74.3 percent. At 1.4, they run approximately 1,655.4 percent, 322.8 percent, 162.0 percent, with 106.1 percent.

At a 1.5 factor, the figures run approximately 3,211.6 percent for 90 days, 482.0 percent for 180 days, 224.4 percent for 270 days, with 141.9 percent for 360 days. The dramatic short term figures reflect annual compounding of the modeled daily rate; they add no contractual charge. Use the table to weigh time, not to guess what any named provider charges: fees with payment dates change every result, with no single factor can name an annualized rate without the remaining cash flows. Most comparisons quote the percentage while hiding the dates. Whether any provider would recognize its own offer in this table is another question.

Affordability on Its Own Terms

Months into collection, a lower annualized cost never ensures the business can meet the daily debit. Operating expenses with receipt timing can strain an otherwise cheaper schedule. Set the payment beside the actual cash forecast. The rate fell. The payment did not.

The reverse holds as well: a payment that fits current receipts can still carry a costly total. Assess price with performance risk together. Neither calculation should be permitted to hide the other. I am less certain about receipt timing than this section might suggest.

Carrying the Figures Into Review

Delancey Street can review MCA with business debt settlement options where an existing schedule no longer sustains the business. The company provides settlement services, with independently licensed counsel responsible for legal representation. A confidential initial review can begin with actual funding with payment documents rather than a factor alone.

Bring the net deposit, the current payoff, with a record of payments already made. A proposal must address the remaining obligation. The original transaction cost supplies context without establishing what a creditor will accept now. Ask the reviewer to carry program fees with anticipated expenses inside the comparison, with confirm the funding source with the release language in writing. That paperwork decides more than the percentage.

Most owners quote the factor while the calendar answers the question. I understand the shorthand. Consultation is where this conversation begins: retain the assumptions beside every shared calculation, so another adviser can reproduce the result, with judge each offer by dates with dollars rather than a dramatic percentage detached from both.