Factor Rate vs. Interest Rate: How to Compare Offers Honestly

They measure different things

An interest rate is charged on the balance you still owe. As you pay the balance down, the interest charged falls with it. A factor rate is a multiple applied once to the original amount — the total cost is fixed at signing and does not shrink as you repay.

That is why a factor rate that looks like a small number can carry a much higher effective cost than an amortizing loan quoted at a higher-looking percentage. The two numbers are not on the same scale, so comparing them side by side is meaningless.

Put both offers on the same footing

• Total payback — how much money leaves your account in total, including every fee, from first payment to last.
• Term — how many days, weeks, or months you have to pay it back. Cost spread over six months is not comparable to the same cost over three years.
• Payment frequency — daily and weekly debits pull cash out far faster than monthly payments, even when total payback matches.
• Fees outside the quote — origination, documentation, ACH, servicing, and wire fees belong in your total, not in a footnote.
• Prepayment treatment — on an amortizing loan, paying early saves interest. On a factored advance, the full payback is often still owed unless a discount is written into the contract.

The single most useful comparison

Divide total payback by the amount you actually receive, then look at that number next to the term. Cost per dollar borrowed, held against time, is the only honest apples-to-apples view. Ask each funding source for that figure in writing; a reputable one will give it to you without hesitation.

Cheapest is not always right

A slower, lower-cost facility that arrives after the opportunity has passed is not a better deal. A faster, higher-cost advance that lets you take delivery of a contract can be worth its price — as long as the cash flow it produces comfortably covers the payment schedule. Size the decision against the return, not against the rate alone.

Questions worth asking before you sign

• What is the total payback, including every fee?
• What is the payment amount and how often is it debited?
• Is there a discount for early payoff, and is it in the contract?
• Is a personal guarantee required, and what does it cover?
• Does this facility restrict me from taking additional positions?

Atlas walks clients through the comparison before anything is signed. We arrange financing rather than fund it, so our interest is in you understanding the structure you accept.