Cost of capital explained (factor vs APR)
60-second TL;DR
Factor is a multiplier (e.g., 1.25 = you pay back $1.25 per $1). APR is an annualized rate. You can't directly compare them — convert to total dollars to compare apples to apples.
Core ideas
- • Factor rate: 1.20 = borrow $10k, repay $12k (total cost $2k)
- • APR: annualized % — standard for term loans and consumer products
- • MCA uses factor because repayment is tied to sales, not a fixed schedule
- • Compare total cost of capital (dollars) across products
- • Shorter MCA terms = higher effective cost even with same factor
Comparison
| Metric | Factor rate | APR |
|---|---|---|
| What it is | Multiplier on principal | Annualized interest rate |
| Typical products | MCA, some advances | Term loans, SBA, personal loans |
| Easy to compare? | Compare total dollars | Compare directly if same term |
Next steps
Capital works best with operations and continuity in view — not in silos.