How a factor rate works
A factor rate is a multiplier used to calculate an agreed collection amount. It is different from an interest rate or an annual percentage rate (APR).
For illustration only: a $20,000 advance at a factor rate of 1.30 implies $26,000 to be collected before additional fees. The difference is $6,000. These figures are an educational example, not a Skycoast offer or price.
Net proceeds can be different
If a provider deducts fees before sending funds, the amount deposited may be lower than the stated advance. Ask for a breakdown of the amount you receive and every cost you are responsible for.
The collection schedule matters
The same total cost can place different pressure on a business depending on the collection amount and frequency. Daily or weekly collections may affect the cash available for payroll, suppliers and rent.
A factor rate by itself does not let you compare annualized costs. Consider timing, fees and the collection schedule when comparing different financing products.
Questions to ask before accepting
- What is the actual amount deposited into my account?
- What is the total amount to be collected?
- Which fees are included, and which are additional?
- How much is collected, and how often?
- What happens if revenue changes?
- Does paying early change the total cost?
Further reading: NerdWallet’s guide to merchant cash advances. Examples are educational and are not funding offers.