Guide · What it costs
What does business funding actually cost, in dollars?
By Alex Makowski Published
On a $50,000 merchant cash advance at a 1.3 factor rate, you repay $65,000 — $15,000 for the money. That is the number worth comparing. Percentages, factor rates and daily payments all describe the same thing less clearly, and the daily payment in particular makes expensive offers sound cheap.
In this guide
- 01The arithmetic, worked through
- 02Why the daily payment misleads
- 03What is not in the headline number
- 04The one question to ask every funder
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01
The arithmetic, worked through
A factor rate is a multiplier applied once, not interest accruing over time. At 1.30 you repay 1.3 times what you receive, whether it takes four months or nine.
$25,000 at 1.30 = $32,500 repaid, $7,500 cost.
$50,000 at 1.30 = $65,000 repaid, $15,000 cost.
$100,000 at 1.30 = $130,000 repaid, $30,000 cost.
Move the rate and the cost moves with it: $50,000 at 1.20 costs $10,000; at 1.40 it costs $20,000. Same money, double the price.
Cost of $50,000, by product
02
Why the daily payment misleads
Two offers on $50,000: one repays $65,000 over 6 months, the other $70,000 over 12. The second has a much smaller daily payment and costs $5,000 more.
Daily payment is a cash-flow question. Total repayment is a price question. They get conflated constantly, usually in the direction that flatters the more expensive offer.
Ask both, but decide on the total.
03
What is not in the headline number
Origination or administration fees, sometimes 1 to 3 percent, occasionally taken from the advance so you receive less than the figure quoted.
ACH or processing fees per payment.
Ask for the total cost including every fee, and ask what actually lands in your account. Those are two different numbers more often than they should be.
04
The one question to ask every funder
“What is the total I repay, in dollars, including all fees — and what amount actually arrives in my account?”
Any hesitation answering that is information about the funder, not about the paperwork.
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.
- Why do funders use factor rates instead of APR?
- Advances are repaid over months rather than years, so an APR looks alarming even on competitive pricing. The factor rate is genuinely simpler arithmetic — it is also less comparable to a bank loan, which does not hurt the funder.
- Is business funding expensive?
- Compared to a bank loan, yes, considerably. Compared to missing payroll or losing a contract, that depends on the job the money does. The point is to know the number rather than discover it.
- Can I get a cheaper rate by waiting?
- Often. Another six months of trading and consistent deposits moves pricing more than anything else within your control.
Guides
More on what it costs
The APR behind a factor rate
A 1.3 factor repaid daily over four months is about 160 percent APR. Over eight months, about 80. Same fee, different speed.
The fees around the rate
An origination fee of a few percent, ACH and underwriting fees, and sometimes a broker fee. On a small advance they outweigh the factor.
The daily payment, computed
Total repayment divided by business days in the term. $65,000 over 126 days is $516 a day.
$50,000, four ways
$15,000 on an advance over six months, or $12,000 to $17,000 on equipment spread over five years. Same money, different jobs.
Short term or long term
Longer usually costs more in total and less per week. The right answer is the longest term whose total you can stomach.
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.
Sources
- Consumer Financial Protection BureauFederal consumer-finance regulator. Publishes guidance on credit terms and disclosure.
- Federal Trade CommissionEnforces against deceptive practices in small-business lending and marketing.
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