If you've requested restaurant funding, you've seen an offer priced like this: "$50,000 advance, 1.35 factor, 6-month estimated term." No APR anywhere. That's not an accident — factor pricing makes expensive money look cheap. Here's how to read it in about five minutes.
What a factor rate is
A factor rate is a simple multiplier on the amount advanced. Take the advance, multiply by the factor, and that's the total you repay:
$50,000 × 1.35 = $67,500. The cost of the money is $17,500, fixed on day one.
That's the whole formula. No compounding, no amortization schedule — and, crucially, no reward for paying early. Typical offers run between 1.20 and 1.50 depending on your revenue quality, time in business, and how the funder reads your bank statements.
Why 1.35 is not "35% interest"
The instinct is to read 1.35 as 35%. Two things make the true cost much higher:
1. The term is short. You're paying that 35% fee over roughly six months, not a year. Annualized, you're already near 70% before the second effect.
2. The balance declines while the fee doesn't. You repay daily. Three months in, you've returned half the money — but you're still paying fees calculated on all of it. Measured the way every other loan is measured (on the money you actually have outstanding), a 1.35 factor over six months works out to an effective annualized rate of roughly 125%.
Don't take our word for the math — put your own offer into our factor rate calculator. It solves the real rate from the payment stream and shows the daily payment alongside it.
The three numbers that actually matter
When an offer lands, ignore the pitch and extract three numbers:
- Total payback (advance × factor) — the only honest price tag.
- The daily or weekly payment — divide it into your average daily net revenue. If the payment is more than about 10% of a normal day's sales, slow weeks are going to hurt.
- The estimated term — shorter terms mean higher effective rates for the same factor. A 1.30 factor over 4 months costs more per year than 1.40 over 12.
Questions that change the price
Funders have more flexibility than the first offer suggests. Ask, in writing:
- "Is there a prepayment discount?" Some funders will reduce the total payback if you clear the balance early — but only if it's in the agreement before you sign.
- "Can this be card-split instead of fixed daily debit?" If most of your revenue arrives on cards, repayment as a percentage of daily card sales flexes with slow Mondays and strong Saturdays. Same fee, much safer structure. More on this in our card-split repayment guide.
- "What's the renewal policy?" The renewal treadmill — taking a new advance to finish paying the old one — is how a one-time bridge becomes permanent triple-digit-rate debt. Understand the payoff math before you ever renew.
When the math still works
None of this means never take an advance. It means know the price. A $17,500 fee to capture something worth more — a broken walk-in replaced before the weekend, a bulk food contract at margin, a catering deal that needs staff and inventory up front — can be rational when cheaper money isn't available in time. Our honest guide to restaurant MCAs covers when that trade makes sense and when it doesn't.
See your real numbers
Run your offer through the calculator first. Then, if you want to see what your restaurant actually qualifies for, start a funding request — about five minutes, free, no obligation, and checking doesn't touch your credit score.
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