Is a 1.25 factor rate good?

Where a 1.25 factor rate sits

A 1.25 factor rate means you repay 1.25 times what you take. Advance $50,000 and you send back $62,500. In the world of merchant cash advances, where the price is a factor rate rather than an interest rate, 1.25 is a below-average number, and that is a good thing.

A factor rate is not an interest rate, and the difference matters. Interest builds on a balance over time, so a longer loan costs more in interest. A factor rate is a single fixed multiplier set at signing, so at 1.25 the cost is locked at a quarter of the advance from day one, whether you repay in six months or eighteen. That is part of why 1.25 is easy to underrate: the sticker looks small, but the price still has to be read against the term.

Most advances price between 1.1 and 1.5, and the offers owners actually see cluster in the 1.2 to 1.5 range. The middle of the full band is around 1.30. The middle of the range most files land in is closer to 1.35. So 1.25 sits below both midpoints. That makes it decent-to-good pricing for fast, revenue-based capital: not the rock-bottom number a pristine file might see, but a clear step better than the middle of the pack.

It is not the lowest rate that exists. Strong files with long histories occasionally see 1.15 or lower. But 1.25 is a price a healthy business can feel good about, provided the term and the fine print line up. The rest of this page puts real dollars on it, and shows you the one variable that decides how good 1.25 actually is.

What 1.25 costs in real dollars

The math behind every advance is one line: total payback equals the advance times the factor. At 1.25 that is the advance times 1.25, and the cost of capital is the quarter that sits on top. Here is what 1.25 looks like across common amounts, each repaid with a fixed daily remittance over about 12 months, which is 252 business days.

Two patterns run through the numbers below. The cost of capital is always 25 cents on the dollar, a quarter of whatever you take, so the price scales in a straight line with the amount. And the daily remittance climbs cleanly with size, from about $74 a day on $15,000 to about $1,240 a day on $250,000. Read that per-day figure as the real test, because it is what actually leaves your account each business day. You can run your exact amount through the MCA calculator in under a minute.

• $15,000 advance: $18,750 paid back, a $3,750 cost of capital, about $74.40 a business day.
• $25,000 advance: $31,250 paid back, a $6,250 cost, about $124.01 a day.
• $50,000 advance: $62,500 paid back, a $12,500 cost, about $248.02 a day.
• $75,000 advance: $93,750 paid back, an $18,750 cost, about $372.02 a day.
• $100,000 advance: $125,000 paid back, a $25,000 cost, about $496.03 a day.
• $150,000 advance: $187,500 paid back, a $37,500 cost, about $744.05 a day.
• $250,000 advance: $312,500 paid back, a $62,500 cost, about $1,240.08 a day.

A $50,000 advance at 1.25, walked through

Take one offer and follow it all the way down. You are advanced $50,000 at a 1.25 factor, repaid daily over about 12 months. Multiply $50,000 by 1.25 and the total payback is $62,500. Subtract the $50,000 you received and the cost of capital is $12,500. That is the whole price, fixed the day you sign. A factor rate does not compound, so the number will not grow if the term runs long, and it will not shrink if you pay ahead of schedule.

Spread across 252 business days, that $62,500 works out to about $248.02 a business day. Across a typical month of roughly 21 business days, that is close to $5,200 pulled from your account. The right way to judge it is to ask whether that daily figure clears in your slowest week with payroll, rent, and your other bills still covered. A common sizing rule of thumb is to keep an advance between 50 and 150 percent of your average monthly revenue, so the daily remittance stays a slice of your deposits rather than a strain on them.

In APR terms, this structure lands near a 46.3 percent true APR-equivalent, an estimate for comparison only, not a contractual APR. Hold that number for a moment. It is the honest annualized price of a 1.25 advance repaid over a year, and the next section shows how far it moves when nothing changes but the term.

The term is what decides how good 1.25 is

Here is the part that actually answers the question. The factor rate says nothing about how long you hold the money, and time is what turns a fair price into an expensive one, or the other way around. Take the same $50,000 advance at 1.25. The cost of capital is $12,500 no matter what, a quarter of the advance. What moves is how that cost looks once you annualize it.

The figure that lets you compare an advance against a loan is the true APR-equivalent, an estimate for comparison only, not a contractual APR. On the same $50,000 at 1.25, it swings from about 30.9 percent to about 92.2 percent based only on the term, which means a 1.25 over six months and a 1.25 over eighteen months are not the same deal even though the sticker rate is identical. Watch it stretch.

• Six months, 126 business days: about $496.03 a day, and a true APR-equivalent near 92.2%.
• Nine months, 189 business days: about $330.69 a day, near 61.6%.
• Twelve months, 252 business days: about $248.02 a day, near 46.3%.
• Fifteen months, 315 business days: about $198.41 a day, near 37.0%.
• Eighteen months, 378 business days: about $165.34 a day, near 30.9%.

Simple cost versus the true APR-equivalent

There are two honest ways to describe the price of an advance, and they sit far apart. The simple way: $12,500 on $50,000 is 25 percent of what you took. It is easy to read, and it is the number that makes 1.25 feel cheap.

The comparison way annualizes that cost and accounts for the fact that you start repaying immediately, in small daily pieces, so you never hold the full $50,000 for the full term. On a 12-month term that lifts 25 percent simple up to a true APR-equivalent near 46.3 percent, an estimate for comparison only, not a contractual APR. Shorten the term and the gap widens, because you are returning the money even faster.

The reason the two numbers diverge is the daily remittance itself. Because you begin paying the advance back on the first business day, your average outstanding balance is well under the full $50,000 for most of the term. Returning capital that quickly is what pushes the annualized cost above the simple 25 percent, even though not a dollar of the price has changed. It is the same money, described two honest ways.

Neither number is a trick. The simple rate tells you the total dollars. The APR-equivalent tells you how the price compares to credit quoted in APR, like a card or a line. The method behind the conversion is spelled out in how we calculate the true APR-equivalent, and the full walk-through lives in how to convert a factor rate to an APR-equivalent. Use the simple number to size the cost, and the APR-equivalent to shop.

How 1.25 compares across the band

It helps to see 1.25 next to its neighbors. Here is the same $50,000 advance over the same 12-month term at each common factor, so the only thing changing is the rate. The APR-equivalent figures below are estimates for comparison only, not contractual APRs.

Two things are worth noticing as you read down the rungs. Moving from 1.25 to 1.30 adds $2,500 in cost on this advance, and dropping to 1.20 saves $2,500, so every 0.05 on the factor is worth $2,500 per $50,000 advanced. And 1.25 undercuts the middle of the pack by a clear margin, which is exactly what you want a rate to do.

• 1.15: $57,500 paid back, $7,500 cost, about 28.5%.
• 1.20: $60,000 paid back, $10,000 cost, about 37.5%.
• 1.25: $62,500 paid back, $12,500 cost, about 46.3%.
• 1.30: $65,000 paid back, $15,000 cost, about 54.8%.
• 1.35: $67,500 paid back, $17,500 cost, about 63.1%.
• 1.40: $70,000 paid back, $20,000 cost, about 71.3%.
• 1.49: $74,500 paid back, $24,500 cost, about 85.6%.

When 1.25 is genuinely good pricing

A 1.25 factor is a good price when the rest of the deal supports it. In the right setup it is close to the best you should expect from a revenue-based advance, and taking it can be a sound call, especially when speed is the point and an advance can fund in as little as 24 hours while a line of credit usually takes a few business days. The clearest green lights:

• Your file is clean. Steady deposits, six-plus months in business, and healthy average monthly revenue are what earn a below-typical factor. If you were offered 1.25 on strong numbers, that is the system working in your favor.
• It is your first position. A single advance you can service comfortably is the safest place to be. A 1.25 with no other advance stacked behind it is a genuinely reasonable cost of capital.
• The term is sensible. Over 12 to 18 months the daily remittance stays manageable and the APR-equivalent stays in the 30s to mid-40s. That is where 1.25 earns its keep.
• The money does real work. If the advance funds inventory, a hire, or a job that returns more than the $12,500 it costs on a $50,000 draw, the price pays for itself.

When 1.25 is not as good as it looks

The same 1.25 can be a worse deal than the sticker suggests, because a low factor does not, on its own, make an advance a good deal. The term, the fees, and your position finish the sentence. Watch for these before you sign:

• The term is very short. A 1.25 over six months carries a true APR-equivalent near 92.2 percent, an estimate for comparison only, not a contractual APR. The factor looks friendly; the annualized cost does not. A short term is the most common reason a low factor still stings.
• The fees are heavy. Origination, underwriting, or ACH fees are not baked into the factor. A 1.25 with several points of fees on top can cost more in practice than a 1.30 with none. Ask for the total dollars, not just the rate.
• It is a second or third position. Stacking a 1.25 on top of an existing advance raises both your daily drain and your risk, and it is how healthy businesses end up cash-starved. A low factor does not make a second position safe.
• You qualified for cheaper and were not shown it. If your numbers would support 1.20 or a line of credit, 1.25 is money left on the table. That is a reason to compare, not to sign the first offer you see.

How to check your own 1.25 offer

The only way to know whether your 1.25 is good is to run your actual numbers. Drop your amount, 1.25, and your real term into the factor rate calculator to see the simple cost and an APR-equivalent, then use the MCA calculator for total payback, cost of capital, and the daily remittance. Two minutes there tells you more than any rule of thumb.

Then compare it fairly. If you can wait a few business days and your credit supports it, a business line of credit priced in true interest is usually cheaper over time, because you pay only on what you draw. If you need capital fast and a 1.25 advance is the tool that fits, a below-typical factor over a sensible term is a fair price for that speed.

For the two rungs above 1.25, our siblings on a 1.35 factor rate and a 1.49 factor rate walk the same math at higher prices, and what makes a factor rate good covers how to judge any offer against your own file.

When you have a real 1.25 offer in hand, you can start with a two-minute review, no credit pull to start, and a specialist will put your options side by side in plain dollars. Nothing here is an offer of credit, and actual terms vary by underwriting. See your options whenever you are ready, or call or text 866-625-4413.