Pricing

Factor rate

The pricing convention used by merchant cash advances and revenue-based loans. Not an APR — and consistently misunderstood by both borrowers and headline pricing comparisons.

Definition

A factor rate (sometimes "buy rate" or "cost factor") is a flat multiplier applied to a cash advance to determine the total repayment amount. It's expressed as a decimal greater than 1 — typically 1.12 to 1.30 in the UK.

Total repayment  =  Advance  ×  Factor rate

Example:
  Advance       = £50,000
  Factor rate   = 1.18
  Total repaid  = £50,000 × 1.18  =  £59,000
  Cost          = £9,000 (the "factor cost")

How repayment works

Unlike a term loan with fixed monthly payments, a factor-rate product is repaid as a percentage of daily revenue until the total is repaid. For a hospitality SME doing £100k/month in card revenue, with a 12% holdback, the lender takes £12k/month from card settlements until the £59k total is paid down — about 5 months in fast months, longer in slow ones.

The borrower's effective duration is unknown at signing; it depends on revenue performance.

Factor rate ≠ APR

A factor rate of 1.18 sounds modest. Convert to APR and the picture changes:

  • Repaid in 6 months → APR ≈ 36%
  • Repaid in 9 months → APR ≈ 24%
  • Repaid in 12 months → APR ≈ 18%

The faster the borrower repays, the higher the equivalent APR. This is the opposite of intuition — strong revenue businesses actually pay more in APR-equivalent terms because they repay faster.

Approximate conversion formula

APR  ≈  (factor_rate − 1)  ×  (365 / expected_hold_days)  ×  100

For factor 1.18, 270-day hold:
  APR ≈ 0.18 × 365 / 270 × 100  =  24.3%

Use this when comparing factor-rate offers to APR-priced term loans on the same notional facility.

Who uses factor rates in the UK

  • Liberis — established UK MCA provider, embedded in many POS providers
  • YouLend — revenue-based finance, B2B partnership model (used by Booking.com, eBay UK, etc.)
  • Capify, Boost Capital — direct-to-merchant MCA providers
  • 365 Business Finance, Merchant Money — UK-only MCA specialists

When factor-rate pricing makes sense for the borrower

  1. Predictable card revenue, prefer revenue flex. Hospitality and retail businesses that want repayment to scale with revenue rather than commit to fixed monthly payments.
  2. Thin credit file but strong revenue evidence. APR lenders may decline; MCA lenders underwrite on card transaction data rather than credit history.
  3. Time-critical cash. Decisions in hours rather than days. The premium pays for speed.

Outside these three, an equivalent APR loan is almost always cheaper at the same risk level.

For lenders pricing factor-rate products

Two things to disclose under FCA Consumer Duty's customer-understanding outcome:

  • An equivalent APR range based on typical and worst-case hold durations
  • The total cost in £, in pounds and pence, not just the factor multiplier

"Factor rate 1.18 (equivalent APR ~24% on 9-month expected hold; total cost £9,000 on a £50,000 advance)" is the form the FCA expects in 2026 marketing material.

Related

Frequently asked

How do I convert a factor rate to APR?

There is no exact conversion because factor rates have no fixed term. Standard approximation: APR = (factor_rate − 1) × (365 / expected_hold_period_days) × 100. Example: factor 1.18 on 270-day expected hold → APR ≈ 24.3%.

Why do revenue-based lenders use factor rates instead of APR?

Repayment is not fixed — it scales with daily revenue — so a traditional APR doesn't apply cleanly. Factor-rate pricing is psychologically simpler ('borrow £50k, repay £59k') but hides duration risk.

What is a typical UK factor rate?

UK MCA factor rates run 1.12 to 1.30 for facilities of £10k–£500k, with expected hold periods of 6–12 months. Median around 1.22 on a 9-month hold (Liberis, YouLend benchmark).

When does factor-rate financing make sense?

Predictable card-revenue businesses wanting flex; thin-credit-file SMEs with strong revenue evidence; time-critical 24-hour decisions. Outside these, an APR-priced loan is almost always cheaper.