What is factoring, and what does it actually cost a business?
Factor rates in dollars. APR-equivalents next to every quote. The terms agreements actually use, defined. Do your reading first, and only apply when the numbers work for your business.
- Costs shown as dollars and APR-equivalent
- Banks and alternatives on the same table
- Written for owners, reviewed against current agreements
- How much does a merchant cash advance actually cost?Paying a 1.30 factor across six months does not work out to an annual cost of 30%. See the arithmetic.
- Should you choose a bank loan, a line of credit, SBA or an advance?One table puts eight options side by side: cost, speed, term and what each requires.
- How much could my business qualify for?Enter monthly revenue, history, open positions and credit to get a range.
- Terms you will see in the agreementPlain definitions for holdback, reconciliation, confession of judgment and UCC lien.
Turn a quote into dollars
Run the numbers on a factor rate
Enter the amount, factor rate, term and remittance schedule from an advance quote to see what you pay back in total, what it costs in dollars, each daily or weekly remittance, and the APR a loan would have to charge to match it.
How much can I qualify for?
We estimate a funding range using your average monthly revenue, time in business, open positions and credit band, much as an underwriter would on a first pass.
8 options, one table
Banks, SBA and advances compared together by typical cost, speed, term, requirements and best fit.
What business funding costs, by option
| Option | Typical cost | Speed | When it fits |
|---|---|---|---|
| Merchant cash advance | Factor 1.15–1.45 → roughly 40–150% APR-equivalent | 1–3 days | Owners who have been turned down by banks; a brief, high-margin need that can't sit around waiting for a bank |
| Revenue-based financing | Cap of 1.2–1.6× the amount | 3–7 days | Businesses that are seasonal or growing fast, where payments ought to rise and fall with sales |
| Business credit line (bank) | Prime + 1–5%, roughly 9–14% APR | 1–4 weeks | Ongoing shortfalls; for a qualified business, no flexible money costs less |
| Online line of credit | Roughly 20–60% APR | 1–3 days | A credit line for when the bank's minimums or timeline aren't a match |
| Bank term loan | Roughly 8–14% APR | 2–8 weeks | Projects planned far enough out to qualify; beaten on cost only by SBA |
| SBA 7(a) loans | Prime + 2.25–4.75%, roughly 10–14% APR | 30–90 days | If time permits, the biggest amounts, longest terms and least costly capital open to a small business |
| Equipment financing | Roughly 7–20% APR | 2–10 days | Equipment purchases: since the asset backs the deal, pricing comes in well under unsecured capital |
| Invoice factoring | 1–5% of the invoice per month outstanding | 1–3 days after setup | Businesses whose reliable customers take 30–90 days to pay them |
These are not offers but typical cost ranges for small businesses in the U.S., current as of the date this page was updated. Advance APR-equivalents are based on daily remittances across the stated term; the factor rate calculator shows the math.
Explainers, answer first
Terms you will see in the agreement
Plain answers, then the detail
All of the explainers here follow one pattern: short answer up top, detail after.
Is a merchant cash advance a loan?
No. With an MCA, you sell a fixed amount of your future receivables at a discount, getting a lump sum up front and then paying a set daily or weekly amount, or a share of card sales, until the full purchased amount has been delivered. Since this is not a loan, it has no interest rate: what it costs is the gap between the amount you receive and the amount you remit, stated as a factor rate, and you can only line that factor rate up against a loan after converting it to an APR-equivalent over the same term.
What's the right way to compare a factor rate against an interest rate?
Put both into dollars across the same number of months, and then into APR. A $50,000 advance priced at 1.30 for six months runs $15,000, which is roughly 109% APR-equivalent with daily remittance. Borrow the same $50,000 from a bank at 12% APR for six months and the term loan costs roughly $1,770. When a bank can't fund a short, high-margin use quickly enough, the advance could still be the better tool; what matters is looking at both numbers before you pick.
When is a bank the better choice?
When it can give you a yes within the time you have. A bank term loan or line of credit costs a fraction of what an advance does, and an SBA 7(a) loans costs even less. Start there if your business is two years old, your score is 680 or higher and your financials are clean. Alternatives are worth what they cost when the opportunity or gap can't wait, or when a bank has already turned you down.
What do funding partners look at?
We start with your deposits, reviewing three to six months of business bank statements along with your average daily balance, any negative days and the positions you already carry. The range comes from how long you've been in business and the owner's credit band, and the exact figure comes from the statements. No tax returns are needed to see options from most advance and revenue-based programs.
Does reading or applying affect my credit?
Reading does nothing. Starting a request does not pull credit. If you decide to proceed with a specific offer, the funding partner might run a soft or hard inquiry, and you'll be told which one ahead of time.
How is this site paid?
When a request that The Carrollton Funding Council refers ends up funded, a funding partner pays The Carrollton Funding Council. Reading, applying and getting options never cost readers anything. Every page that points to the application states this, and we also publish the situations where a bank, a line of credit or holding off for a quarter is the correct choice.
Want to find out what your numbers return?
Send one request with three months of statements and get options from our network of funding partners in plain dollars, or a straight answer that a bank would serve you better.