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Home / Business Loans guides / Factor Rates, Fees and APR: What a Business Loan Really Costs

Factor Rates, Fees and APR: What a Business Loan Really Costs

How to convert any offer to an annual rate in two minutes, and why a 1.25 factor rate is not 25%.

Written by Team RankingRight
September 1, 2026 · 4 min read

The trick in plain terms

A lender offers $100,000 at a factor rate of 1.25. You repay $125,000. That reads as 25% — but if the term is six months, you never hold the full $100,000 for a year, and the true annual cost is roughly 60%. The shorter the term, the bigger the gap between the factor rate and the truth.

A two-minute conversion

  1. Total repayment minus the amount borrowed equals the cost.
  2. Divide the cost by the amount borrowed to get the simple rate.
  3. Divide by the term in months, then multiply by 12.
  4. Multiply by about 1.8 to account for repaying as you go rather than at the end.

On the example: $25,000 cost ÷ $100,000 = 25%; ÷ 6 months × 12 = 50%; × 1.8 ≈ 90% APR on a daily-debit structure. Use a proper APR calculator for a decision, but this tells you fast whether to keep reading.

The fees that hide

  • Origination, 1%–9%, taken off the top — you borrow $100,000 and receive $93,000.
  • Draw fees on lines of credit, charged every time you use it.
  • Prepayment penalties, or a fixed total repayment that paying early does not reduce. Ask specifically: "if I repay in month three, what do I owe?"
  • Daily or weekly debits, which cost you nothing extra on paper and a great deal in cash-flow terms.

The order to try

SBA 7(a) if you can wait a month. A CDFI like Accion Opportunity Fund if you are newer or underserved. Funding Circle or Bluevine if you qualify and need it this week. The fast, high-APR lenders last, for the smallest sum that solves the problem.

This is general information from published lender materials, not financial advice. Talk to your accountant before borrowing.

» See the full rankings: Best Small Business Loans of 2026, Fastest Business Loans (Same-Day and Next-Day Funding), Best Business Loans for Bad Credit .