What a 1.2, 1.3, 1.4, and 1.5 Factor Rate Costs in APR by Term Length

A factor rate prices a total payback without regard to the speed of collection, which is why the same number can describe a costly advance and an extremely costly one. The term sets the price. Every comparison below holds the factor fixed and varies the months, so the reader watches cost move against an unmoving contract number.

The figures that follow are computed illustrations on a hypothetical $100,000 advance, stated before fees and under a daily collection convention, and they carry the limits of that method throughout. They are not disclosures, and no single cell below is the rate on any live offer. What they show instead is the shape of the relationship: shorter collection at the same factor means a higher implied annualized cost, in every row, without exception.

How the Table Was Built

Start with the contractual dollar charge, which is the part of the table that requires no model at all. On $100,000 of funding, a factor of 1.2 produces $120,000 in total payments, and factors of 1.3, 1.4, and 1.5 produce $130,000, $140,000, and $150,000, with respective charges of $20,000, $30,000, $40,000, and $50,000 above the advance. Those charges are scale invariant: halve the advance and each charge halves with it.

The annualized figures come from a daily rate calculation (which, if we are being precise, assumes equal debits on consecutive days and excludes every fee the agreement may add). The advance is treated as disbursed on day zero and repaid in equal daily installments, and the implied rate is the daily figure that equates the two streams, annualized. The federal explanation of the annual percentage rate as a broader measure of borrowing cost supplies the vocabulary for what follows. The table borrows that vocabulary for comparison and nothing else.

A 1.2 Factor Across Four Terms

In 2019, before California imposed its disclosure regime on commercial financing, a 1.2 factor reduced in conversation to twenty cents on the dollar, and the description stopped there. The charge is $20,000 per $100,000 funded. Collected across twelve months, the implied annualized cost is 46.3 percent. Across nine months it is 66.0 percent. Across six it is 113.6 percent. Across three it is 352.1 percent, an extremely steep price for twenty cents on the dollar.

And the dollars owed did not move. The payback is $120,000 in each case, through daily debits that rise as the term shortens. Whether this pattern surprises a given reader cannot be known from this desk, but the pattern explains why two businesses can sign the same factor and carry different burdens. The factor described the total. The term distributed it.

A 1.3 Factor Across Four Terms

A 1.3 factor adds $30,000 per $100,000 funded, for a payback of $130,000 that the financing party states as a multiple rather than a rate. The annualized equivalents run from 74.3 percent at twelve months to 109.7 percent at nine months, then to 202.9 percent at six months, with 805.3 percent at three months closing the row. The steepest movement sits between the sixth month and the third (a compression the owner feels in the weekly bank balance long before it appears in any annualized figure), where halving the collection period more than triples the implied figure.

That movement is arithmetic rather than penalty, though the account feels the difference the way it would feel a penalty. A funder that collects the same payback in half the time has doubled the velocity of extraction while the contract shows an identical number. This is the row to study before the others, because 1.3 sits near the center of marketed offers and therefore governs more files than either end of the band. That should end the discussion of headline multiples.

A 1.4 Factor Across Four Terms

The charge at 1.4 is $40,000 per $100,000, with a payback of $140,000 that must be measured against the cash the business received after withheld fees, which the factor ignores. At twelve months the implied annualized cost is 106.1 percent. At nine months it is 162.0 percent. At six it is 322.8 percent. At three it reaches 1,655.4 percent, a figure that reads as error until the reader divides $140,000 across ninety daily debits and considers what those debits demand of a single quarter.

Rarely does a headline multiple survive contact with the term. There is a peculiar comfort in the twelve month cell, and it misleads: 106.1 percent at 1.4 across a full year sits below 113.6 percent at 1.2 across six months. Term can outweigh factor. That is the comparison most owners never make. A lower multiple collected fast costs more than a higher multiple collected slow, and any owner who reviews and compares offers by factor alone ranks the wrong number.

A 1.5 Factor Across Four Terms

The top of the commonly marketed band adds $50,000 per $100,000 funded. The payback is $150,000. The implied annualized figures are 141.9 percent at twelve months, 224.4 percent at nine, 482.0 percent at six, and 3,211.6 percent at three. The three month cell is stated here because the matrix requires it, not because any business should test it.

Whether funders who price at the top of the band expect collection across the full term or count on an early default is a question the table cannot resolve.

What the Illustration Cannot Disclose

None of the figures above is a statutory annual percentage rate. Business purpose credit stands outside the federal disclosure statute that governs consumer rates, as the exemption for business purpose transactions in the federal disclosure statute confirms, so the percentages here remain implied costs rather than legal conclusions. Each one governs the account as if it were one. Separate state regimes add their own duties: California requires APR type cost metrics for covered commercial transactions, and the agreement itself controls fees, reconciliation rights, and default uplifts that this table excludes.

Delancey Street, a settlement company, not a law firm, receives offers so the numbers above can be set beside the clauses the table cannot see. The firm will review and analyze the advance, the factor, the term, and the provisions that modify both, to ensure the response fits the obligation rather than the advertisement. Independent counsel handles the legal questions that review uncovers and ensures that any filing is timely. Simply bring the offer before it is signed, so what the owner accepts, or walks away from, reflects the full obligation rather than the headline multiple, with the bank record set against it.