You’ll meet a factor rate the moment you look at a merchant cash advance for your cash flow. It’s a cost multiplier the lender uses instead of an interest rate, and the difference matters more than the name suggests.
It is also the most misread number in working capital finance. A loan charges interest on the balance you still owe, so the cost falls as you pay it down. A factor rate is applied once, to the amount you receive, and fixes the total the moment you sign. Confuse the two and you can talk yourself into an advance that looks cheaper than the loan you just turned down.
What a Factor Rate Is
You repay £1.30 for every £1 you receive at a factor rate of 1.30. Borrow £20,000 and you owe £26,000, and that figure doesn’t move: clear it in three months or drag it across twelve, you still repay £26,000.
The finance cost is the gap between the two: £26,000 minus £20,000 is £6,000, before any separate fees. Subtract 1 from the factor rate and you have the same thing as a percentage, so 1.30 is a 30% flat charge on the amount advanced.
Factor rates are written as a decimal, and UK published material puts the usual span between 1.10 and 1.50. The lower the rate the cheaper the advance: 1.10 means you repay 10% more than you received, 1.50 means half as much again.
| Factor rate | Flat finance cost | On £10,000 | On £20,000 | Finance cost on £20,000 |
|---|---|---|---|---|
| 1.10 | 10% | £11,000 | £22,000 | £2,000 |
| 1.20 | 20% | £12,000 | £24,000 | £4,000 |
| 1.30 | 30% | £13,000 | £26,000 | £6,000 |
| 1.40 | 40% | £14,000 | £28,000 | £8,000 |
| 1.50 | 50% | £15,000 | £30,000 | £10,000 |
Working backwards is just as useful, because plenty of offers lead with the repayment figure rather than the multiplier. Divide the total repayable by the amount advanced: £26,000 ÷ £20,000 gives 1.30. If an offer quotes you a total and never mentions a factor rate, that one division tells you what you’re being charged.
Why Lenders Use Factor Rates Instead of APR
An APR needs a repayment period, and a merchant cash advance doesn’t have one. Repayments come out as an agreed percentage of your card takings, so the balance clears quickly in a strong month and slowly in a quiet one. There is no end date to annualise against until the sales have actually happened.
The commercial angle is less flattering. A factor rate of 1.30 reads like a manageable mark-up, while the same charge annualised over a six-month repayment lands somewhere north of 50%. Both numbers describe the same £6,000. One of them is a great deal easier to sign, and we rate that gap the reason the format persists.
There is also no general requirement to quote an APR on this kind of agreement. An advance structured as a purchase of your future card takings is not a loan, so the consumer-credit disclosure rules that would force a published APR may not reach it at all. That doesn’t make the factor rate deceptive, but it does hand you the work of comparing. The regulatory position is more conditional than the product name suggests.
How to Compare a Factor Rate With APR
Dividing the flat cost by the repayment period does not give you an APR. It gives you a simple annualised cost. The two get used interchangeably across this market, and they are not the same number.
Take a £20,000 advance at 1.25. The finance cost is £5,000, which is a flat 25% of the amount advanced. If it clears in six months, dividing 25% by 0.5 years produces 50%. That 50% is a simple annualised cost, and it carries an assumption worth seeing: that the whole £20,000 stays outstanding for the full six months.
It doesn’t. You start handing money back with the first day’s takings, so the sum you actually have use of falls from the outset. A genuine APR calculation accounts for that, because it works from the timing of every payment rather than the total alone. Run the same advance through a cash-flow calculation and the annualised figure comes out above 50%, not below it: you had the full amount for a good deal less than six months.
We keep five figures apart on this page, because an offer can quote you any one of them and call it the cost:
- Finance cost: the pounds charged. £5,000 in the example above.
- Flat cost: that charge as a percentage of the advance. 25%. This is the factor rate minus 1.
- Simple annualised cost: the flat cost spread over your expected repayment period. 50% over six months.
- Cash-flow-based annualised cost: the same advance calculated from the timing of each repayment. Higher than the simple figure, and the fairer comparison against a loan.
- APR: an annualised rate calculated under a defined statutory method, which applies where the agreement is regulated credit.
Ask a provider for the total repayable and the expected repayment period and you can work out the first three yourself. We set the arithmetic out step by step in our factor rate vs APR comparison.
Factor Rate vs Interest Rate vs APR
These three get grouped together and they measure different things. An interest rate is a charge on what you still owe. An APR is a standardised annual figure built so credit products can be compared, and it takes in relevant charges as well as the rate. A factor rate is neither: it is a multiplier that sets a total.
| Feature | Factor rate | Interest rate | APR |
|---|---|---|---|
| Expressed as | A multiplier (1.30) | A percentage of the balance (12%) | An annual percentage (15.2%) |
| What it calculates | The total you repay | The charge on the amount outstanding | The annual cost of the credit |
| Does time change it? | No (the total is fixed at signing | Yes) a longer term costs more interest | Yes: it is an annual measure by definition |
| Does it compound? | No | Usually | Reflects the compounding in the product |
| Repaying faster | Total unchanged; annualised cost rises | Total interest falls | Not applicable: it is a rate, not a total |
| Compare offers directly? | Only against factor rates over the same period | Not on its own | Designed for exactly that |
A 1.20 factor rate is not 20% APR, and the gap is not small. Subtracting 1 gives you a 20% flat charge on the advance; the APR on the same money depends on how quickly you repay it and what else you’re charged. Put a factor rate and an APR side by side without converting either and the comparison is meaningless.
Why Repayment Speed Changes What It Costs
Repayment speed leaves the cash cost exactly where it is and moves the annualised cost a long way. On a £20,000 advance at 1.25 you hand back £25,000 whether that takes three months or twelve, so the £5,000 charge is identical in every version. What changes is how long you had the money.
Clear it in three months and that £5,000 works out at roughly 100% on a simple annualised basis. Stretch it across twelve and the same charge is 25%. Nothing in the agreement moved. You paid for a year of finance and used a quarter of it.
Which leaves you somewhere counter-intuitive. A strong Christmas on the tills clears the advance early, which is what you want for your cash flow and what makes the finance most expensive for the time you actually had it. A flat January does the reverse: cheaper by the annualised measure, harder to live through.
Which figure matters depends on what you’re deciding. If the question is whether you can afford the advance at all, the cash cost is the one that counts, and it’s fixed. If you’re weighing it against a bank loan or an overdraft, the annualised figure is what makes that comparison fair, and it is the one we use when we set an advance against term borrowing.
Does Early Repayment Reduce the Cost?
Not automatically, and that qualifier is doing real work, because the flat “no” you’ll read elsewhere isn’t quite right. The charge is a fixed fee rather than interest on a falling balance, so clearing an advance early doesn’t shrink it by default the way overpaying a loan does. The total was set when you signed.
Terms vary between providers, though, and our provider reviews show the variation is worth chasing before you commit. Some will discuss a settlement figure. Some publish that they levy no early-repayment charge, which is a different thing again: no penalty for clearing early is not the same as a discount for doing it. Liberis applies no arrangement or early-repayment charge on top of its fixed fee, and is still explicit that early repayment doesn’t automatically reduce the total owed under its standard structure (Liberis review, verified 13 August 2026).
So put the question directly, and put it in the right words: if I clear this in four months rather than nine, what is the settlement figure? A provider that will reduce it can tell you. One that won’t has also told you something, and it belongs in your comparison.
Factor Rate vs Holdback Percentage
Two numbers sit on most merchant cash advance offers and they do different jobs. The factor rate sets how much you repay in total. The holdback (some providers call it the retrieval rate) sets how fast, by taking an agreed slice of each day’s card takings until the total is cleared.
£20,000 at 1.30 means £26,000 repayable, and that holds whatever the holdback is. A 10% holdback on £2,000 of daily card sales sends back £200 a day; a 20% holdback sends £400 and clears the same £26,000 in roughly half the time. The cost in pounds is identical either way. What differs is how much of each day’s takings stays with you.
That makes the holdback the number that lands on your cash flow, not the factor rate. A high holdback on thin margins can clear the advance quickly and leave you short for the wage run in the same week, which is why it’s worth modelling against your quiet-month takings rather than your best ones. Some agreements also collect a shortfall by direct debit if the sales split falls below an agreed monthly minimum: we cover those clauses in the merchant cash advance guide.
What Is a Good Factor Rate in the UK?
There is no single good number, and a page that hands you one is guessing at your business rather than pricing it. Providers set the rate on what your takings look like, which is why the same advance gets quoted differently by two lenders on the same day.
What moves the quote:
- how long you’ve been trading
- monthly card or overall turnover, and how steady it is month to month
- your sector, and how seasonal it is
- the size of the advance you want
- finance commitments you already have
- your credit profile, where the provider looks at it
We checked what UK providers actually publish, and the answer is not much: most price each offer individually rather than putting out a rate card. 365 Finance’s own explainer puts the usual span between 1.1 and 1.5 and says plainly that its figures are illustrative, since underwriting differs between providers (365 Finance, checked 18 August 2026). Liberis publishes no universal factor rate at all and quotes a personalised fixed fee instead, where a £20,000 advance carrying a £4,000 fee works out at a 1.20 equivalent (Liberis review, verified 13 August 2026). Treat 1.10 to 1.50 as the span the market talks in, not a quote anyone is bound by.
A lower factor rate on its own doesn’t settle it either. Weigh the total repayable, any fees sitting outside the factor rate, the expected repayment period, the holdback and the early-settlement terms together. An offer at 1.22 with an arrangement fee and a 20% holdback can cost you more, and squeeze you harder, than one at 1.28 with neither.
Which Products Use Factor Rates?
Merchant cash advances are the main one, alongside revenue-based finance, which works the same way but against general turnover rather than card sales alone. Capify, Liberis, YouLend and 365 Finance all price this way in the UK market.
Factor-rate pricing also turns up on short-term advances sold on speed of funding. Wherever you meet one the rule holds: it’s a fixed fee, so the headline gives you the total cost and tells you nothing at all about the annualised one. If you’re weighing an advance against ordinary term borrowing, our merchant cash advance vs business loan comparison runs the numbers side by side.
How to Compare Two Factor-Rate Offers
Line two offers up on the same seven things and the cheaper one often stops being the one with the lower multiplier.
- Cash received: what actually reaches your account, which isn’t always the advance figure on the offer.
- Total repayable, advance multiplied by the factor rate.
- Factor rate, or the total divided by the advance, where they’ve only quoted you a total.
- Fees outside the factor rate: arrangement, processing or monthly service charges the multiplier doesn’t cover.
- Expected repayment period: in months, based on your actual takings rather than a best case.
- Holdback percentage, and what it leaves you each week.
- Early-settlement terms: whether the figure falls if you clear early.
We put three questions at the top of any comparison: what is the total amount repayable, how long do you expect it to take at my current takings, and is there any charge that sits outside the factor rate? Get the answers in writing. A provider that will only give you the third one over the phone has answered it.
Are Factor-Rate Products FCA Regulated?
Two things decide this, and neither is the product’s name: what kind of business is borrowing, and whether the agreement is credit at all. “Merchant cash advances are unregulated” is the shorthand you’ll see everywhere, and it’s too broad to rely on.
Limited companies and LLPs
A limited company or a limited liability partnership is a body corporate, and the consumer credit regime doesn’t reach it. Borrowing in your company’s name isn’t a regulated credit agreement, whatever the product is called and whatever it costs. Financial Ombudsman Service access and the protections attached to regulated credit generally won’t apply, so the agreement itself is what you have.
Sole traders, small partnerships and unincorporated businesses
This is where the blanket statement breaks down. A sole trader is an individual. So, for these purposes, is a partnership of two or three partners who aren’t all companies, and an unincorporated body that isn’t made up entirely of companies. Agreements with any of them can be regulated credit agreements.
Size then decides it. An agreement is exempt where the credit exceeds £25,000 and is taken wholly or predominantly for business purposes (Article 60C(3), Financial Services and Markets Act 2000 (Regulated Activities) Order 2001). At or below £25,000, business borrowing by a sole trader can sit inside the regulated perimeter rather than outside it.
Whether the agreement is credit at all
Running underneath both is a separate question. A merchant cash advance is usually written as a purchase of your future receivables rather than a loan, and a purchase isn’t credit. We treat that structure as the main reason these products sit outside the regime regardless of who signs, though whether a particular agreement really is a purchase turns on its terms, not its heading.
The practical upshot: don’t infer your protections from the product name. Check whether the provider is authorised on the FCA register, and read what your own agreement says about complaints and the Financial Ombudsman Service before you need either.
Factor Rate FAQs
Is a factor rate the same as an interest rate?
No. A factor rate is a one-off multiplier applied to the advance to fix the total repayable, while an interest rate is charged on the amount outstanding over time. A factor rate doesn’t compound, and the total doesn’t change with how long you take to repay.
Does a lower factor rate always mean a cheaper advance?
On the same advance over the same period, yes: 1.20 costs less than 1.30. But fees can sit outside the factor rate, and the holdback percentage decides how hard the repayments hit your cash flow. Compare the total repayable and any separate charges, not just the multiplier.
Can I reduce the cost by repaying a factor-rate advance early?
Not automatically. The charge is fixed at signing rather than accruing on a falling balance, so clearing early doesn’t reduce it by default. Settlement terms do vary between providers, though, so ask what the settlement figure would be before you sign. Repaying faster also raises the annualised cost, because the same fixed charge covers a shorter period.
How do I compare a factor rate to a loan APR?
Work out the finance cost as (factor rate − 1) × the advance, then annualise it over your expected repayment period. That gives you a simple annualised cost, not an APR: it assumes the full advance stays outstanding throughout, whereas an APR reflects the timing of each repayment. Use the simple figure to sanity-check an offer, and treat the real annualised cost as higher.
Why don’t merchant cash advance lenders quote an APR?
There’s no fixed term to calculate one against, since repayments track your card takings. On top of that, an advance structured as a purchase of future receivables isn’t a loan, so the consumer-credit disclosure rules that would require a published APR may not apply. Whether they apply at all depends on the borrower and the agreement.
What’s the difference between a factor rate and a factoring rate?
They sound alike and price different products. A factor rate is the multiplier used on merchant cash advances and similar fixed-fee advances. A factoring rate is the pricing on invoice factoring, where a provider advances against unpaid invoices and charges a fee tied to invoice value and how long the invoice takes to settle.
How do I work out the factor rate from a repayment figure?
Divide the total repayable by the amount advanced. A £26,000 total on a £20,000 advance is a factor rate of 1.30. That’s worth doing whenever an offer leads with the repayment amount and doesn’t state the multiplier.
What is a good factor rate in the UK?
There isn’t a universal figure. Published UK material generally describes 1.10 to 1.50 as the usual span, and providers price each offer on trading history, turnover consistency, sector, advance size and existing commitments. Judge an offer on the total repayable, the fees outside the factor rate, the expected repayment period and the holdback rather than on the multiplier alone.
Methodology and Sources
How we checked this page
Scope. We set out how factor rates work, how they differ from interest rates and APR, and how to read a factor-rate offer in cash terms. Product mechanics beyond pricing (eligibility, personal guarantees, minimum-remittance clauses) sit in our merchant cash advance guide rather than here.
How our cost calculations work. Every figure on this page is arithmetic we have carried out on stated assumptions, not a quote. Total repayable is the advance multiplied by the factor rate. Flat finance cost is the factor rate minus 1. Simple annualised cost is the flat cost divided by the repayment period in years, and we label it as such because it is not an APR: it assumes the full advance remains outstanding for the whole period, where an APR is calculated from the timing of each repayment under a defined statutory method.
How we checked published factor rates. Sources checked 18 August 2026: 365 Finance’s published factor-rate explainer, which describes 1.1 to 1.5 as the usual span and states its examples are illustrative; and our own Liberis review, verified 13 August 2026, which records a personalised fixed fee in place of any published universal rate. Pricing on these products is personalised, so published ranges are indicative rather than quotations you can hold a provider to.
Regulatory sources. The regulatory section draws on the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, Article 60C(3) for the business-purpose exemption and the £25,000 threshold, and on the FCA register for provider authorisation. Regulatory status varies with who is borrowing and how the agreement is written, so we have set out the conditions rather than stating a single position for the product.
Update cadence. We re-verify these figures regularly and when providers change pricing; the verification date reflects the most recent review. This page is editorial content, not regulated financial advice. Some links on this page are affiliate links; see our editorial policy.