1. What is Factor Rate?

Factor Rate is a decimal figure that represents the total repayment amount relative to the amount borrowed. It is commonly used in business financing to determine the total cost of a loan or advance.

2. How Does the Calculator Work?

The calculator uses the Factor Rate formula:

Where:

• \( Total\ Repayment \) — Total amount to be repaid including fees and interest ($)
• \( Amount\ Borrowed \) — Original principal amount borrowed ($)

Explanation: The factor rate provides a simple way to understand the cost of borrowing by showing how much you need to repay for each dollar borrowed.

3. Importance of Factor Rate Calculation

Details: Calculating factor rate helps businesses understand the true cost of financing, compare different loan offers, and make informed borrowing decisions.

4. Using the Calculator

Tips: Enter the total repayment amount and the original amount borrowed in dollars. Both values must be positive numbers greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical factor rate range?
A: Factor rates typically range from 1.1 to 1.5, meaning you repay $1.10 to $1.50 for every dollar borrowed.

Q2: How does factor rate differ from interest rate?
A: Factor rate is a simple multiplier while interest rate is annual percentage rate. Factor rate doesn't account for time value of money like APR does.

Q3: When is factor rate commonly used?
A: Factor rates are commonly used in merchant cash advances, short-term business loans, and other alternative financing products.

Q4: Can factor rate be converted to APR?
A: Yes, but it requires knowing the repayment term. The shorter the term, the higher the equivalent APR for the same factor rate.

Q5: What's considered a good factor rate?
A: Lower factor rates are better. Rates below 1.2 are generally considered good, while rates above 1.4 may be expensive depending on the term.