Start with the basic calculation
Multiply the funded amount by the factor rate to find the stated purchased or payback amount. For example, $50,000 multiplied by a 1.25 factor rate equals $62,500. The $12,500 difference is the stated financing cost before any separate fees or adjustments described in the agreement.
Because the multiplier applies to the original amount, the cost generally does not decline like interest on an amortizing loan balance. Always confirm whether the agreement describes a purchase of future receivables, a loan, or another commercial structure.
Duration changes the economic picture
A 1.25 factor paid over a short period is economically different from the same factor paid over a much longer period. That is why comparing factor rates alone can be misleading. Payment frequency, payment amount, estimated duration, and the business’s ability to repay or deliver receivables early all affect the practical cost.
If payments adjust with revenue, ask how reconciliation works. If payments are fixed, stress-test them against slower weeks rather than only against average monthly sales.
Look beyond the headline factor
Review origination fees, broker or administrative fees, wire fees, closing costs, prepayment provisions, renewal terms, guarantees, security interests, and any default-related charges. Net funding—the amount the business actually receives—may be lower than the approved amount if fees or payoffs are deducted at closing.
Ask for the complete payment schedule and total dollar obligation in writing. If an early payoff benefit exists, confirm the exact conditions and whether it is automatic or requires a request.
Compare options using the same inputs
Place each offer side by side using funded amount, net funding, total payback or purchased amount, payment amount, frequency, number of expected payments, fees, collateral or guarantee provisions, and prepayment terms. This creates a more useful comparison than ranking offers by factor rate alone.
Your Next Fund helps businesses explore financing options from third-party partners. Final terms come from the applicable provider, and business owners should review the provider agreement carefully before deciding.