What Is a Factor Rate? How to Calculate the True Cost of an MCA
A factor rate is a decimal multiplier, usually between 1.1 and 1.5, applied once to the funded amount. Multiply the amount by the factor rate to get your total payback: $50,000 × 1.30 = $65,000.
The formula
Total payback = funded amount × factor rate. Cost of capital = total payback − funded amount. In the example above, the cost is $15,000.
Factor rate vs. interest rate
An interest rate accrues over time on the remaining balance, so paying faster lowers the cost. A factor rate is fixed at signing, so the total does not change based on how long repayment takes unless the funder offers an early payoff discount.
Because MCAs are often repaid in months rather than years, the equivalent annualized cost is typically higher than the factor rate suggests. Always look at the total dollars and the term together.
Estimating your daily or weekly payment
Divide the total payback by the number of expected payments. $65,000 repaid over 120 business days is about $542 per day. Make sure that amount fits comfortably within your average daily deposits.
Questions to ask before you sign
What is the total payback? Are there origination or other fees deducted from the funded amount? Is there an early payoff discount? What happens if revenue drops? Every iFundYou offer states these numbers before you sign.
This article is general education, not financial or legal advice. Terms vary by product and business.