# APR, factor rate and total cost: turn any offer into dollars and a yearly rate

**Short answer:** Total cost is dollars repaid minus dollars received. In the example below, a factor rate of 1.30 on $50,000 repays $65,000, a $15,000 cost. Its APR runs from about 51% over 12 months to about 172% over 3.

Canonical page: https://www.sbaexpress.loans/guides/apr-factor-rate-and-total-cost/
Last checked: 2026-11-09

## On this page

- [Four terms, four meanings](#four-terms-four-meanings)
- [A worked example: one factor rate, four different APRs](#a-worked-example-one-factor-rate-four-different-aprs)
- [A second example: a fee taken from the proceeds](#a-second-example-a-fee-taken-from-the-proceeds)
- [When APR misleads](#when-apr-misleads)
- [What regulators require you to see](#what-regulators-require-you-to-see)
- [Where SBA loans fit](#where-sba-loans-fit)
- [Ask for these in writing](#ask-for-these-in-writing)

## Four terms, four meanings

Total cost is dollars repaid minus dollars received. Every other term is a way to describe that cost.

- **Interest rate.** A yearly percentage charged on the unpaid balance. Fees are usually not part of it.
- **Factor rate.** A multiplier applied once to the amount you receive. A factor rate of 1.30 on $50,000 means you repay $50,000 × 1.30 = $65,000.
- **Fee.** A flat charge, often taken out of the proceeds. It lowers the dollars you receive.
- **APR.** A yearly rate that relates the amount and timing of what you receive to the amount and timing of what you pay. California's rule defines it that way (10 CCR § 940(a)).

The FTC says the factor in a merchant cash advance is often between 20% and 50% of the amount. The Federal Reserve Board says a factor rate is not comparable to an APR or an interest rate. It also notes that advance providers often do not state their cost as an interest rate or an APR.

## A worked example: one factor rate, four different APRs

Suppose you receive $50,000 and repay $65,000. That is a factor rate of 1.30 and a cost of $15,000. The cost does not change with the term. The APR does. These figures assume equal monthly payments. They are illustrations, not quotes.

- Repaid over 12 months: about $5,417 a month. APR: about 51%.
- Over 9 months: about $7,222 a month. APR: about 67%.
- Over 6 months: about $10,833 a month. APR: about 97%.
- Over 3 months: about $21,667 a month. APR: about 172%.

You can check the 6-month figure in a spreadsheet. The function RATE(6, -10833, 50000) returns about 0.0805, the monthly rate. Multiply by 12 to get about 97% a year.

You can also estimate by hand. The cost is 30% of the amount ($15,000 ÷ $50,000). Over 6 months that is 60% a year. You repay the balance as you go, so you hold less than $50,000 on average. That is why the true figure is higher.

A Federal Reserve Board article cites an analysis of a lender that advertised a factor rate of 1.15. It put the undisclosed APR at about 70%. In this guide's arithmetic, a factor rate of 1.15 repaid in four equal monthly payments comes to about the same.

## A second example: a fee taken from the proceeds

Suppose a bank offers $50,000 for 36 months at an assumed 10% a year, with a 3% origination fee. The fee is $1,500, so you receive $48,500. The payment is still based on $50,000, about $1,613 a month.

- Total repaid: about $58,081. Cost: $58,081 − $48,500 = about $9,581.
- The assumed stated rate is 10%. The APR is about 12%, because the fee shrinks what you receive while the payment stays the same.

That gap is why APR counts fees. California's rule says the APR calculation includes all finance charges (10 CCR § 940(b)). Ask for the stated rate and the APR, and compare both.

## When APR misleads

APR is a useful cross-check, not the whole answer.

- **Short needs.** A $1,000 fee on a $50,000 bridge held for 30 days costs 2%. Scaled to a year, that is about 24%. The dollar cost is small, so a high APR can still be a fair price for a short need.
- **Early payoff.** APR assumes you keep the money to the end of the term. A factor rate fixes the cost in dollars, so paying early raises your effective APR unless the contract gives a discount. At 1.30, paying in 3 months instead of 6 moves the APR from about 97% to about 172%.
- **Payment timing.** The same dollars repaid daily give a higher APR than repaid monthly, because the money comes back sooner. A factor rate of 1.25 on $50,000 over about six months is about 81% with monthly payments and about 92% with daily ones.
- **Lines of credit.** APR depends on how much you draw and when. California's rule assumes you borrow the full limit at the start and make only minimum on-time payments (10 CCR § 940(c)).

Use APR to compare products of similar length. Use total dollars to judge whether the need is worth the price.

## What regulators require you to see

The federal Truth in Lending rule does not require an APR on business credit (12 CFR 1026.3(a)(1)). Several states do for covered offers.

- **California.** An estimated APR on offers of $500,000 or less. Providers must also show an average monthly cost for products without a monthly payment (DFPI, June 14, 2022).
- **New York.** An estimated APR on commercial financing up to $2,500,000 (23 NYCRR Part 600).
- **Texas.** For covered providers, the finance charge in dollars and the total repayment on sales-based financing under $1 million. The law does not require an APR (Finance Code ch. 398).

An estimate is an estimate. The rules allow assumptions about payment timing, and California's form requires the provider to state them. Read the assumptions.

In the Federal Reserve Banks' 2026 survey, 60% of firms that borrowed from online lenders said the actual cost was higher than they expected. A written total in dollars is your protection against that.

## Where SBA loans fit

SBA 7(a) and SBA Express loans use interest rates with published caps, not factor rates. The variable-rate caps are Prime plus 3.0 to 6.5 percentage points, depending on loan size (13 CFR 120.214(d)). An SBA lender may not charge commitment, origination, broker, referral and similar fees, points, prepayment fees and renewal fees (SOP 50 10 8.1, Sec. A, Ch. 4, Para. C.4). Also, SBA does not allow balloon payments (App. 18, Para. A.3.g).

The lender pays SBA's upfront guaranty fee and may pass the cost to you (Sec. A, Ch. 4, Para. C.1.a). The fee calculator shows the dollars.

SBA will not refinance an active merchant cash advance with a 7(a) loan (App. 14, Para. A.3). Learn the total cost before you sign one.

## Ask for these in writing

1. The amount you will receive, after every fee.
2. The total you will repay, in dollars.
3. The payment amount and how often it leaves your account.
4. The estimated APR and the assumptions behind it.
5. Whether paying early lowers the cost, and by how much.

None of the sources cited here lists typical factor rates or fees. They vary by provider, so use the arithmetic above with the numbers you are offered.

## Sources

- [Federal Reserve Board, Small Business Credit: How Entrepreneurs Finance the American Dream, Consumer & Community Context (March 2025)](https://www.federalreserve.gov/publications/2025-march-consumer-community-context.htm)
- [Federal Reserve Banks, 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey (published March 3, 2026)](https://www.fedsmallbusiness.org/2026-report-on-employer-firms)
- [FTC Business Blog, Small business financing: Staff Perspective outlines issues (February 26, 2020)](https://www.ftc.gov/business-guidance/blog/2020/02/small-business-financing-staff-perspective-outlines-issues)
- [12 CFR § 1026.3(a), Regulation Z, exempt transactions (CFPB)](https://www.consumerfinance.gov/rules-policy/regulations/1026/3/)
- [California DFPI, commercial financing disclosure regulations, 10 CCR §§ 900-956 (final text, effective December 9, 2022)](https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/06/PRO-01-18-Commercial-Financing-Disclosure-Regulation-Final-Text.pdf)
- [California DFPI press release, June 14, 2022](https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/06/Commercial-Financing-Disclosure-PR-June-2022.pdf)
- [New York DFS, 23 NYCRR Part 600, Commercial Finance Disclosure Law regulation (final text)](https://www.dfs.ny.gov/industry_guidance/regulations/final_financial_services/rf_finservices_23nycrr600_text)
- [Texas H.B. 700 (2025), Finance Code ch. 398, commercial sales-based financing (enrolled text)](https://capitol.texas.gov/tlodocs/89R/billtext/html/HB00700F.HTM)
- [13 CFR § 120.214(d)](https://www.ecfr.gov/current/title-13/section-120.214)
- [SOP 50 10 8.1, Sec. A, Ch. 4, Para. C.1.a, upfront fee, and Para. C.4, prohibited fees (Para. C begins p. 62)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 18, Para. A.3.g, amortization (about p. 399)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 14, Para. A.3, Sales-Based Repayment Agreements (pp. 355-356)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)