Factor rate is not an interest rate
If you take $50,000 at a 1.35 factor rate, you owe $67,500 no matter how quickly you repay. The $17,500 difference is fixed at signing. Many business owners read 1.35 as roughly 35 percent, and if the money were outstanding for a full year at a steady balance that reading would be close. It almost never is.
Repayment starts within a few business days of funding. If the remittance is $450 per business day, the $67,500 clears in 150 payments, roughly seven months. Your average outstanding balance across that period is about half the advance. Halving the balance roughly doubles the annualised rate, and finishing in seven rather than twelve months compresses it further. The effective APR on that deal is around 90 to 100 percent.
Typical 2026 ranges
- Factor rates: 1.10 to 1.15 for the strongest files, 1.25 to 1.35 as the common middle, 1.40 to 1.50 for weak credit or a second position.
- Terms: three to eighteen months, with six to twelve months most common.
- Holdback: 8 to 20 percent of daily card or bank deposits, or a fixed daily debit.
- Upfront fees: 1 to 5 percent, usually deducted from the wire, plus ACH charges per debit.
- Effective APR: commonly 40 to 150 percent, and above 250 percent on short, high factor deals.
Paying early usually costs you more
On a conventional loan, early repayment saves interest. On a standard merchant cash advance it does not, because the payback amount is fixed. Clearing a $67,500 obligation in four months instead of seven means the same $17,500 cost over a much shorter period, so the effective APR nearly doubles. Some funders offer an explicit early payoff discount. Get it in writing before you assume it exists, and read whether it applies to the balance or only to remaining fees.
Stacking is where deals go wrong
Taking a second or third advance while the first is still outstanding is called stacking. Two or three daily debits hitting the same bank account can consume a large share of daily deposits, and the business runs out of operating cash long before the advances clear. Most agreements also prohibit it outright, which creates a default event. If the first advance is already tight, the answer is a restructure conversation, not another advance.
Clauses worth reading twice
- Personal guarantee of performance. Not a full personal guarantee of the debt, but it can be triggered by acts such as changing your merchant processor.
- Confession of judgment. Restricted in several states but still present in some contracts. It allows judgment without a hearing.
- Reconciliation rights. A true receivables purchase should let you adjust the remittance when revenue falls. If reconciliation is discretionary rather than mandatory, the deal behaves like a fixed loan.
- Change of processor and bank account restrictions.
Cheaper places to look first
Before accepting an advance at 90 percent APR, it is worth spending a week on the alternatives, even though they are slower. An SBA 7(a) loan in 2026 caps between 9.75 and 13.25 percent depending on size. A bank or credit union line of credit typically runs 9 to 18 percent. Invoice factoring on business to business receivables often lands at 20 to 60 percent effective. Equipment finance against a specific asset is usually 8 to 20 percent. An advance makes sense when speed genuinely decides the outcome and the return on the cash clearly beats its cost.