Cost of Capital.
A factor rate is not an interest rate, and the difference is not small. This converts one into a number you can actually compare.
The instrument
What it actually costs.
A factor rate is not an interest rate. Set the terms you have been quoted and read the annualised cost, next to what ordinary commercial credit costs for the same money.
- Total repaid
- $67,500
- Cost of the money
- $17,500
- Each payment
- $536 / business day
- Number of payments
- 126 payments
On $50,000 at a 1.35 factor over 6 months, the annualised cost is 126%.
The annualised figure is a nominal APR: the internal rate of return on the actual payment schedule, annualised on the same basis lenders quote. It is deliberately not an effective compounded rate, which would read far higher and would overstate the comparison. It is higher than the quoted percentage because an advance is repaid from day one, so you never hold the full amount for the full term. Comparison rates are illustrative, not offers. This is general information, not advice, and nothing here is a quotation.
Assumptions and limits.
An instrument that hides its assumptions is a sales tool. These are the ones this uses.
What it assumes
- The annualised figure is a nominal APR: the internal rate of return on the actual payment schedule, annualised on the same basis lenders quote.
- Business days are taken as 252 a year and weeks as 52.
- Comparison facilities amortise monthly at 11 percent for a working capital line and 8.5 percent for a term facility.
- The advance is assumed to be repaid on a level schedule from the first period.
What it cannot tell you
- It does not include origination fees, broker points, ACH fees, or any charge outside the payment schedule, all of which raise the real cost.
- It cannot model a facility whose payment moves with card volume or receipts.
- It says nothing about whether the money is worth taking, which depends on what it buys.
- It is not a quotation, and no funding source has seen your file.
Educational only. This instrument is a teaching tool, not advice, not an offer, and not a quotation. It models one set of assumptions and cannot account for your circumstances. Figures are illustrative. Any real transaction is underwritten on its own facts by the funding source.
Send us theterm sheet.
If you are holding a quote and want the annualised cost against the alternatives, send it over. No charge and no obligation.