Riverhead TeamWhat to know
APR for term-style products; factor rates for revenue-based financing. How to read each unit honestly and compare offers on total dollars repaid.
Business financing is quoted in two different units — and mixing them up is how owners overpay. Term-style products use APR. Revenue-based financing uses a factor rate. Each is honest when you read it in its own language.
APR: the standard for term-style products
APR (annual percentage rate) expresses cost as an annualized rate, including fees. It is the standard for comparing term loans, lines of credit, SBA products, and equipment financing.
When you receive a term-loan offer:
- Compare APR across offers, including origination and other fees.
- Read the amortization schedule for total dollars repaid.
- Check whether early payoff saves interest.
APR answers: what does this cost per year, all-in?
Factor rate: how revenue-based financing quotes cost
A factor rate is a flat multiplier on the amount you receive. Get $100,000 at a 1.30 factor and you repay $130,000 over the financing's full course — roughly a 51% effective APR over a 12-month term.
Read it in dollars:
- Total payback = funded amount × factor
- Cost in dollars = total payback − funded amount
- Cents on the dollar = (factor − 1) × 100
On $100,000 at 1.30: $130,000 total, $30,000 in cost, 30 cents per dollar borrowed.
Do not treat "1.30" like "30% interest." A factor rate does not amortize, so paying early does not shave interest the way it does on a term loan — an early payoff is settled as a negotiated discount instead.
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How to compare across product types
You are often choosing between speed and total cost — not between two numbers in the same unit.
| Question | Term loan / LOC | Revenue-based financing |
|---|---|---|
| Cost quoted as | APR / interest rate | Factor rate |
| Total cost | Amortization schedule | Funded amount × factor |
| Speed | Days to weeks | Often same day |
| Documentation | Heavier | Bank statements |
| Early payoff | Saves interest automatically | Discount negotiated, not automatic |
Put every offer in total dollars repaid and payment as a share of cash flow. For term products, APR still helps you rank options. For revenue-based financing, convert to APR to rank it against a term loan, then decide on the factor and total payback — those are the numbers you actually pay.
What to ask before you sign
Term-style offers:
- What is the APR, including all fees?
- What is the total amount I will repay?
- Is there a benefit to paying early?
Revenue-based offers:
- What is the factor rate and total payback?
- What is the remittance percentage and schedule?
- What discount applies if I pay it off early?
The takeaway
APR and factor rates are different languages for different products. Use APR to compare term-style offers. Use total dollars and cents on the dollar for revenue-based financing. Once every offer is read honestly, the best fit — and the true cost — usually becomes obvious.