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Factor Rate Pricing Calculator

Calculate minimum, target, and premium factor rates based on risk tier, term, and cost of capital.

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How Are Factor Rates Determined?

Factor rate pricing is the science behind how funders (and ISOs with their own syndication books) set the price of capital for MCA deals. A factor rate must cover four components: cost of capital (what the funder pays to borrow the money they lend), expected defaults (the percentage of deals that will not fully repay), operating costs (underwriting, servicing, collections), and profit margin. For a funder borrowing at 12% annually, expecting 8% defaults, and targeting a 15% net margin, the minimum viable factor rate on a 6-month deal works out to roughly 1.22. The target rate adds buffer, and the premium rate prices in additional risk for lower-tier merchants. Plug in the variables to see exactly why a funder quotes the rate they do -- and where there is room to negotiate.

How to Use This Calculator

Select the risk tier

A-paper merchants get the lowest factor rates. D-paper merchants get the highest. The tier determines the default rate assumption and risk premium baked into the price.

Set the term and default assumptions

Shorter terms reduce capital exposure time. Higher default rates require higher factor rates to compensate for losses. Use your actual portfolio data if available.

Enter cost of capital

This is what the funder pays to access the capital they deploy. Bank lines of credit run 8-14%. Institutional credit facilities run 10-18%. Individual syndication investors expect 15-25%.

Key Concepts

Cost of Capital

The interest rate or return the funder must pay on the money they use to fund deals. This is the floor below which the factor rate cannot go without losing money.

Default Reserve

The portion of the factor rate that compensates for expected deal losses. If 8% of deals default with 30% recovery, the effective loss rate is about 5.6%, which must be priced into every deal.

Risk Premium

Additional factor rate points charged for higher-risk merchants. Moving from A-paper to C-paper typically adds 10-20 cents to the factor rate to compensate for the 2-3x increase in default probability.

Expert Insights

Why Factor Rates Seem High: Merchants and consumer advocates often cite 40-80% APR equivalents on MCAs. From a pricing perspective, the factor rate has to cover 8-12% cost of capital, 5-10% default losses, 3-5% operating costs, and 10-15% profit margin -- all compressed into a 6-10 month term. When you annualize the combined cost, the APR looks extreme, but the funder's actual net margin is often only 12-18%. Understanding this math helps you explain pricing to merchants and identify funders who are overpricing versus pricing fairly.

Negotiating Down the Buy Rate: If you understand a funder's cost structure, you can negotiate more effectively. A funder with a bank credit facility (8% cost) has more room on buy rates than a funder using syndication capital (18-22% cost). Ask funders about their capital source -- it reveals their pricing flexibility. A funder on cheap capital who quotes 1.35 buy rate has 10+ cents of margin to negotiate. A funder on expensive capital at the same quote has 3-4 cents at most.

Frequently Asked Questions

Three primary reasons: cost of capital (bank-funded vs. syndication-funded), risk appetite (conservative funders decline more but price lower; aggressive funders approve more but price higher), and operating efficiency (a funder with automated underwriting has lower costs than one with manual review). A 20-cent difference in buy rates between two funders is not unusual.

Start with the buy rate and add your desired spread (5-15 cents). The sell rate should be competitive for the merchant's risk tier. A-paper merchants should see 1.15-1.25. B-paper: 1.25-1.35. C-paper: 1.35-1.45. D-paper: 1.45+. Quoting above market reduces your close rate and invites competition.

MCA transactions are structured as purchases of future receivables, not loans, which historically exempted them from usury laws. However, New York, California, Virginia, Utah, and Connecticut now require APR-equivalent disclosures. Some states are considering rate caps. Stay current on your state's commercial financing disclosure laws.

Results are estimates for educational purposes only. Actual amounts may vary based on your specific financial situation, market conditions, and other factors. This calculator does not constitute financial advice.