Guide · What it costs
Does a longer term cost more? Shorter versus longer, in dollars
By Alex Makowski Published
Almost always more in total and less each week. On a factor product the funder usually attaches a higher factor to a longer term — 1.25 over six months might be 1.35 over twelve — so $50,000 costs $12,500 or $17,500. On an interest product, more months of interest is more interest. The shorter term is cheaper only if the business can actually carry the larger payment; a short term that causes a bounced debit costs more than any factor.
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01
The trade, in numbers
$50,000 at 1.25 over six months: $62,500 back, about $496 a business day. The same $50,000 at 1.35 over twelve months: $67,500 back, about $268 a day. The longer term costs $5,000 more and takes $228 a day less out of the account. Neither is wrong. One fits a business with even daily revenue and a strong balance; the other fits a business that is paid in lumps.
On an interest-bearing loan the shape is the same: a longer term is more months of interest, but if the product allows early repayment without penalty, you can take the longer term for the smaller payment and pay it off early if the cash is there — the best of both, and the reason to ask whether the product accrues or is fixed.
Cost of $50,000, by product
02
Why funders offer the short term first
It is less risk to them: their money is back sooner. Often it is quoted as the headline because the factor looks better. The question to ask is what the same amount costs over the longer term, and what the daily or weekly payment is on each. A funder will usually show both when asked. The one you were shown first is not the only one available.
03
How to pick
Start from the payment, not the factor. Look at your average daily balance; a common underwriting rule wants it at ten to fifteen times the daily debit. If the short term's payment breaks that rule, it is the wrong term whatever it saves in dollars, because one returned debit triggers fees, a default notice and a worse file for the next application. Take the longest term whose total cost you can accept and whose payment leaves the account comfortable, and repay early if the product rewards it.
Written by
Alex Makowski, Owner
Alex Makowski owns and runs Business Loans for America and has been placing funding for U.S. small businesses since 2021. Businesses he has worked with have secured $50M+ in financing across 1,200+ placements. He writes and reviews every guide on this site.
FAQ
Related questions.
- Can I extend the term after signing?
- On a fixed-factor advance, not usually — the schedule is set. A reconciliation clause can reduce the payment if revenue drops, which extends the term in practice. On an interest loan, a modification is sometimes possible; ask before a payment is missed, not after.
- Does a longer term mean a higher APR?
- Lower, usually, because the cost is spread over more time — even though the total is higher. This is the trap in comparing on APR alone: the longer term looks cheaper per year and costs more in dollars.
- What terms are actually available?
- Three to eighteen months on advances and short-term working capital, with six to twelve most common. Time in business and deposit consistency decide which end you are offered.
Guides
More on what it costs
The price of equipment money
Close to bank pricing for a strong file, into the twenties for a startup or a low score. The machine is why.
Lower factor, not always cheaper
A 1.2 with high fees and a four-month term can cost more per month than a 1.3 over ten. Compare in dollars.
Worse than advertised
Files are graded A to D on deposits, balance and history. The advertised rate is the A grade. Most files are not A.
What is negotiable
The factor moves a little. The term, the payment frequency, the fees and the amount move more. Ask before signing, never after.
The renewal trap
A $20,000 renewal that retires a $14,900 balance puts $5,100 in your account and charges the factor on all $20,000.
What factor rate should you expect on a merchant cash advance?
Sources
- Consumer Financial Protection BureauFederal consumer-finance regulator. Publishes guidance on credit terms and disclosure.
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