Factor Rate

What Does Factor Rate Mean In Commercial Finance?

A factor rate when used in finance, is used to calculate the cost of borrowing as a fraction.

This can be used to calculate the total cost of borrowing over a given period and the total repayment amount.

The factor rate includes the original borrowing amount (i.e. 1) and the cost of the borrowing, usually the margin charged by the lender.

Factor Rates may be used for a Merchant Cash Advance, Business Loan and also Invoice Finance.

Please see the worked example below.

Factor Rate Example

Finance or Loan Amount: £100,000

Factor Rate: 1.21

Cost of Borrowing: (£100,000 x 1.21) – £100,000 = £21,000

Total Repayment Calculation: £100,000 x 1.21 = £121,000

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