Key takeaways
What to know before you compare
- Factor repayment = advance × factor rate.
- Financing cost compares all required repayment with the cash available to the business.
- Estimated APR requires the number and timing of payments.
- Irregular or sales-based remittances need dated cash flows and cannot be captured exactly here.
Business financing estimate
Convert factor rate to total cost and estimated APR
Models equal payments beginning one regular period after funding. Sales-based and irregular remittances require dated cash flows.
Estimated APR equivalent—not a lender disclosure. Uses 260 business-daily, 52 weekly, or 12 monthly periods per year. It excludes later fees and irregular timing.
What does a factor rate mean?
A 1.25 factor on a $40,000 advance produces $50,000 of base repayment before separately charged amounts. The $10,000 difference is not a 25% APR. Repaying it over a few months creates a much higher annualized rate than repaying it over several years.
The calculator assumes an upfront fee reduces net proceeds and that the factor repayment is divided into equal payments beginning one regular period after funding.
How is the estimated APR equivalent calculated?
The calculator solves for the periodic rate that makes the present value of the scheduled payments equal the net proceeds, then multiplies that periodic rate by the assumed periods per year: 12 monthly, 52 weekly, or 260 business-daily periods.
This produces an educational nominal annualized estimate. It is not a lender disclosure or a statutory APR calculation for an irregular contract. Business-purpose financing is generally treated differently from consumer credit under federal disclosure law, and state requirements can vary.
Which details can change the result?
Later fees, skipped dates, a first payment due immediately, percentage-of-sales remittances, renewals, refinancing, prepayment discounts, and true-ups all alter the cash flows. A faster payoff can raise the annualized cost even if the factor repayment stays fixed.
Ask for the total required outflow, net proceeds, every payment date and amount, prepayment treatment, and an APR disclosure where provided. Compare the result with a term loan or line of credit that meets the same need.
Frequently asked questions
Is a 1.20 factor rate the same as 20% APR?
No. It means base repayment is 1.20 times the advance. APR also depends on fees and repayment timing.
Why does a shorter term increase estimated APR?
The same financing cost is paid over less time, so annualizing the cash flows produces a higher rate.
Can this calculator model a percentage of daily sales?
Not exactly. Actual payment amounts and dates vary with sales, so a precise estimate requires the dated cash-flow history or projection.
Sources and methodology
Karma Loans uses primary government and regulatory sources for material definitions and consumer guidance. Calculators use the assumptions shown beside each tool and round displayed results to two decimal places.
Educational use only. This article and its calculators are not financial, legal, tax, or accounting advice. Karma Loans is not a lender and does not make credit decisions. Provider disclosures and signed agreements control.