Factor Rate vs APR

The factor rate vs APR is a comparison between two ways of expressing the cost of financing. It helps MCA brokers and funders by clarifying how merchant cash advances (which typically use factor rates) differ from traditional loans (which typically use annual percentage rates, or APRs). By capturing these terms consistently, brokers can present clearer options to merchants and funders can evaluate profitability more accurately.

What Are Factor Rate and APR?

A factor rate is a simple multiplier used in MCA and revenue-based financing to calculate total repayment. For example, a $50,000 advance at a 1.3 factor rate requires repayment of $65,000, regardless of time.

APR, by contrast, annualizes borrowing costs into a percentage that accounts for both repayment amount and repayment duration.

The difference matters because a factor rate looks simple but hides the time dimension of repayment. Operators often use APR comparisons to explain the true cost of financing to merchants, while funders rely on factor rates to set offers quickly.

How Do Factor Rate and APR Work?

Factor rate and APR operate as two different pricing lenses.

Factor rate calculation: Multiply the advance by the factor rate to determine the total owed.
APR calculation: Consider both repayment amount and repayment speed, annualizing into a percentage rate.
Merchant perspective: Factor rates are easy to understand, while APRs make comparisons clearer across products.
Industry use: MCAs typically quote factor rates, while banks and loan products quote APRs.

In Heron, factor rate and APR terms are captured directly from funder decision emails.

Parsing approvals: Pricing details such as factor rate, repayment cap, or APR are extracted automatically.
Field normalization: Heron standardizes these values into structured CRM fields.
Comparison ready: Offers can be compared side by side in the CRM without manual rekeying.
Next action: Brokers and funders gain a clear view of costs, enabling faster decisions and better merchant communication.

This makes pricing transparent and consistent across submissions.

Why Are Factor Rate and APR Important?

For brokers and funders, factor rate and APR are important because confusion over pricing undermines merchant trust and slows deal decisions. Merchants may not understand why one offer looks cheaper when, in APR terms, it is more expensive.

Heron solves this by normalizing the factor rate and APR fields, giving operators clarity without manual calculation. This helps teams communicate clearly with merchants, compare offers fairly, and avoid disputes.

Common Use Cases

Factor rate vs APR comparisons are central to underwriting and merchant communication.

Parsing factor rates and APRs from decision emails.
Writing normalized fields back into CRM for side-by-side offer comparison.
Helping brokers explain the true cost of financing to merchants.
Allowing funders to benchmark pricing across their own portfolios.
Reducing errors from manual rekeying of pricing data.

FAQs About Factor Rate vs APR

How does Heron handle factor rate vs APR?

Heron parses pricing terms from decision emails, standardizes them into CRM fields, and makes them available for instant side-by-side comparison.

Why is factor rate vs APR valuable for MCA brokers and funders?

It improves transparency, reduces miscommunication with merchants, and speeds up the process of selecting or presenting offers.

What outputs should teams expect from factor rate vs APR automation?

Teams can expect clean CRM fields with normalized pricing terms, enabling accurate reporting, faster decisions, and clearer communication.