Is a 1.35 factor rate expensive?

Where 1.35 sits in the range

A 1.35 factor rate falls right in the middle of the range most merchant cash advance offers land in, which runs from about 1.1 to 1.5. It is neither at the low end that strong files sometimes see nor at the high end. So calling it expensive or cheap in the abstract misses the point. What matters is the dollar cost it produces and how fast you repay it.

The honest answer is that 1.35 can be a reasonable price for fast, revenue-based capital, and it can also be more than your business should pay if your numbers would support a lower factor or if the term is short. Let us put real figures on it.

What a 1.35 factor costs in dollars

Start by translating the factor into the total you would remit. The formula is the same one that prices every advance:

Total payback = advance amount times factor rate.

On a $50,000 advance, a 1.35 factor means $50,000 times 1.35, which is $67,500. Subtract the advance amount and your cost of capital is $17,500. For reference, our standard worked example uses a 1.40 factor on the same $50,000, which costs $20,000, so 1.35 saves you $2,500 in total dollars on that amount. Seeing the cost as a flat dollar figure is the clearest way to feel whether it is worth it. You can run your own amount through the MCA calculator in seconds.

The term decides whether it is expensive

Here is the part that actually answers the question. A 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 reverse. The shorter the term, the higher the APR-equivalent, because the same $17,500 is repaid over a tighter window.

Walk through it. A $17,500 cost on a $50,000 advance is 35 percent on a simple basis. Repaid over roughly 12 months of daily remittances, that annualizes to an APR-equivalent in the neighborhood of the low-to-mid 60s percent, since the structure mirrors our 1.40 example that lands near 71 percent over the same term. Compress the term to six months and the APR-equivalent climbs well higher even though the factor and the dollar cost have not moved. The APR-equivalent is an estimate for comparison only, not a contractual APR, and the exact method is documented in our how we calculate true APR methodology. The reasons short terms push it up are detailed in why an MCA APR-equivalent can be so high.

When 1.35 is reasonable and when it is not

Use a few simple tests to decide:

• It is reasonable when your revenue and time in business would typically support a factor around there, the $17,500 cost is one you can absorb, and the daily remittance fits a slow week.
• It is reasonable when you need capital quickly and a loan cannot fund in time.
• It is on the expensive side when your numbers would support a lower factor and you simply were not offered it.
• It is expensive when the term is short enough to push the APR-equivalent well above a loan you actually qualify for.
• It is too expensive when it involves stacking on top of an existing advance, which raises both cost and risk.

Compare it fairly

The only way to know whether 1.35 is expensive for you is to convert it and compare. A business line of credit quoted in APR is usually cheaper over time when you qualify and can wait, a trade-off our cornerstone on merchant cash advance cost weighs in plain language. If speed is the priority, a mid-range factor can still be the right call.

Run the exact offer through the math rather than guessing. Drop 1.35, your amount, and your term into the free factor rate calculator to see the simple cost rate and an APR-equivalent, and use the MCA calculator for total payback, cost, and daily remittance. To see the full conversion method, read how to convert a factor rate to an APR-equivalent.

When you have a real 1.35 offer in hand, run it through the free calculator to see the true cost for your business, or talk to a specialist who will compare it against your other options in plain language. See your options with no credit pull to start.