What does a 1.4 factor rate actually mean?
If you've been offered a merchant cash advance, someone probably said a number like "1.4" or "1.35" and moved on quickly. It sounds small. It is not small — and understanding why takes about three minutes.
The one-sentence answer
A factor rate is a multiplier on the money you receive. Take a $50,000 advance at a 1.4 factor rate:
The advance costs you $20,000 — fixed, locked in the moment you sign.
That's the whole formula. No compounding, no amortization schedule. You got $50,000; you owe $70,000.
Why it's not an interest rate (and why that matters)
Here's where most business owners get hurt. A 40% interest rate and a 1.4 factor rate look like the same thing. They are very different animals:
Interest accrues over time on your remaining balance. Pay a loan off early, and you skip the remaining interest — the cost shrinks.
A factor rate is time-blind. The $20,000 cost is the same whether you repay over twelve months or ninety days. And here's the trap: most MCAs are repaid fast — daily or weekly payments over just a few months. Paying $20,000 to use $50,000 for a few months is a dramatically higher annualized cost than the "1.4" suggests.
Run your own numbers
Factor rate calculator
What different factor rates really cost
Fixed cost per $50,000 advanced, and the approximate annualized cost at a typical ~4-month (120 business day) repayment:
| Factor rate | You repay | Fixed cost | Annualized cost* |
|---|---|---|---|
| 1.20 | $60,000 | $10,000 | ~43% |
| 1.30 | $65,000 | $15,000 | ~65% |
| 1.40 | $70,000 | $20,000 | ~87% |
| 1.50 | $75,000 | $25,000 | ~109% |
*Same simple annualization as the calculator above — true effective rates run higher.
Three questions to ask before you sign
1. What is the daily payment as a share of my average daily revenue? Not your best month — your average. Above roughly 15–20%, one slow month can leave you unable to cover payments and expenses at once.
2. Is there an early-payoff discount in writing? Because the payback is fixed, repaying early usually saves nothing unless the contract explicitly says otherwise.
3. If this is a renewal or refinance — how much of the new advance pays off the old one? A new advance that retires an old balance charges the full factor rate on money you already owed. Renewals frequently cost more than they help; check the math before assuming it's relief.
Common questions
Is a 1.4 factor rate high?
By traditional lending standards, yes — at typical MCA repayment speeds it annualizes to well over 80%. Within the MCA industry it's a common quote. Whether it's survivable depends entirely on your revenue: the same deal can be manageable for one business and dangerous for another.
Does paying off an MCA early save money?
Usually not — the payback amount is fixed. Some funders offer prepayment discounts, but only if it's written into the contract. Ask, and get it in writing.
How is the factor rate different from a holdback percentage?
The factor rate sets how much you repay in total. The holdback (or specified percentage) sets how fast — the share of your daily revenue or the fixed daily amount taken. You need both numbers to understand a deal.
Can I convert a factor rate to an APR?
Approximately — divide the fixed cost by how long you actually hold the money, annualize, and adjust for the declining balance. Our calculator above gives the simple version; the full analysis in AuditDeal computes it from your actual repayment schedule.