Before You SignWhat business finance actually costs, in the UK and the US

You cannot compare a factor rate to an interest rate. Here is the arithmetic

A revenue-based advance quotes one number: the total you repay. It leaves out the thing that makes offers comparable, which is time. Repay faster and the annualized cost of an advance rises, which is the reverse of how a loan behaves.

Written by Kaz · Sources re-read 6 September 2026 · Page revised 13 October 2026 · What changed · How figures are checked

A factor rate cannot be compared with an interest rate until you add the one thing it leaves out, which is time. An advance of $50,000 repaid as $60,000, a multiple of 1.2, costs $10,000 whether that takes five months or twenty, and the annualized cost of those same $10,000 is about 111% at five months and about 24% at twenty. Whether anyone has to give you an annualized figure depends on where you are financing: California and New York require the provider to state a rate; Florida, Louisiana, Utah and Virginia require the dollar pieces from which you work one out; everywhere else, including the UK, you have to ask for the estimated term yourself. The perimeter test sets out which of those rules reach your borrowing.

Why there is no rate

Interest accrues over time. A factor is fixed at the start. An advance is quoted as a multiple: you take $50,000, you repay $60,000, and a fixed percentage of your daily card receipts goes to the provider until it is paid. There is no interest rate in that sentence, and that is not an oversight. The cost in dollars is settled on day one; the cost in annualized terms is settled only when the last payment lands.

Here is the same advance — $50,000 taken, $60,000 repaid, $10,000 of cost — at three repayment speeds. The annualized figure is the discount rate at which the payment stream equals $50,000 today, compounded to a year.

What this figure is, and is not

The annualized figure on this page is our estimated effective annualized cost, calculated from the payment stream shown. It is not necessarily the statutory APR or annualized rate required by any particular state disclosure law, which is defined by that law's own formula. Where a legal APR or equivalent is required, use the state disclosure itself.

How fast you repay Monthly payment Months Total repaid Estimated effective annualized cost
Strong trading $12,000 5 $60,000 about 111%
As projected $6,000 10 $60,000 about 50%
Trading falls away $3,000 20 $60,000 about 24%

A good month makes the financing more expensive in annualized terms. The dollar cost does not change; the time over which you carry it does. An amortizing term loan behaves the other way round: repay it early and the interest stops accruing, so the total cost falls.

Estimated effective annualized cost of a $50,000 advance repaid as $60,000

031629312451220Months to repayEstimated effective annualized cost (%)

Total dollar cost is $10,000 in every case. Only the time changes. Figures are our calculation from the payment schedule shown, not a quotation from any provider.

Source: Calculated by internal rate of return on the monthly payment stream, then compounded to an annual figure.

The arithmetic, so you can redo it: find the monthly rate m where the sum of payment ÷ (1 + m)^k, for k = 1 to n, equals the amount advanced. Then the annual figure is (1 + m)^12 − 1. For $6,000 a month over 10 months against $50,000 advanced, m is about 3.5% a month, which compounds to roughly 50% a year. At $12,000 a month over 5 months, m is about 6.4%, which compounds to roughly 111%.

What we do not quote

No regulator publishes a representative range of factor rates, and providers' rates vary by risk and by industry. We therefore use $50,000 and $60,000 purely as round numbers to show the mechanism. Do not read them as typical. Put your own offer's figures into the same calculation.

What the disclosure rules are actually fixing

This is the gap the US state disclosure rules were written to close, and they close it to two different depths.

California and New York require a rate. California requires the total cost of financing expressed as an annualized rate — SB 33 removed the sunset that would have ended that requirement on 1 January 2024, and SB 362, operative 1 January 2026, requires "annual percentage rate" or "APR" wording in specified circumstances. New York's Part 600, covering commercial financing up to $2,500,000, requires the provider to disclose the annual percentage rate.

Florida, Louisiana, Utah and Virginia require the pieces instead: the funds provided, the amount actually disbursed, the total to be repaid, the dollar cost, the payment amount and frequency or the method for estimating it, and the prepayment position. Virginia adds a stated finance charge. None of those four sections uses the words annualized rate.

Nor do they hand you a term. Florida's list, for example, runs from funds provided to the prepayment position without a duration item. The term is what you derive from the payment amount and frequency: $60,000 to be repaid at $6,000 a month is ten months, and ten months is what turns $10,000 of cost into an annualized figure. Where payments vary with receipts, the disclosure gives the estimated initial payment and the method behind it, so the term you derive is an estimate as well — which is why the seasonal calculation below runs the figures twice. Which rules reach your borrowing sets this out state by state.

In the UK there is no equivalent standardized disclosure for a limited company, and the facility sits outside the FCA consumer-credit perimeter. You have to ask for the estimated term yourself.

The prepayment question

Ask one question and the whole product becomes legible: if I repay early, do I pay less?

Get the answer in the agreement. Verbal reassurance about "early repayment discounts" is common and is not a term.

Putting the numbers to use

If you are offered an advance and a term loan of similar size, convert both to total dollars out of the account over the same window, then to an annualized figure using the formula above. Those two annualized figures are the comparison; the factor and the headline rate are not.

If your receipts are seasonal, run the calculation twice: once at your best month and once at your worst. The gap between those two annualized figures is the range you are taking on.

If you are financing in California or New York, the state disclosure carries a rate as well as the dollar totals, and that rate, not the factor, is the figure to set against a loan quote.

If you are financing in Florida, Louisiana, Utah or Virginia, the disclosure gives you the dollar pieces and the payment terms; the conversion to an annualized figure is yours to do, and the cost tool does it.

If you are financing elsewhere, ask in writing for total dollar cost, estimated term and the prepayment position. Providers operating in disclosure states already compute all three.

Who should not use an advance

Anyone financing something with a long payback — a fit-out, an acquisition, a hire whose contribution arrives in year two. Advances are priced for short, self-liquidating needs against receipts that already exist. Used for anything longer, the fixed dollar cost is paid out of revenue that has not arrived yet, and the sweep takes it from the cash flow that was supposed to fund the growth.

The methodology sets out the calculation behind the figures in this guide and how it differs from a statutory APR, and the state disclosure checker shows whether the state you are financing in makes the provider do this arithmetic for you or leaves it to you.

This page is part of business finance in the United States, where the rest of the US material on this site is collected.

Sources

Next step

Compare what a facility actually costs before you talk to a lender. The tool runs in your browser and nothing is sent anywhere.

Open the cost tool

What changed on this page

7 September 2026 New — The cost tool now asks how often you pay - monthly, weekly or every business day - takes a factor rate directly, and separates a fee deducted from the advance from the amount that reaches your account. How often you pay turned out not to be a detail: the same advance, repaid every business day rather than monthly, does not cost a penny more in cash and returns a materially higher estimated annualized cost, because the money goes back to the lender sooner. Daily and weekly collection is the normal shape of an advance, so the figure the tool gave before was the gentler of the two.

6 September 2026 New — A state disclosure checker was added. Six state statutes were read in the original - California, New York, Florida, Louisiana, Utah and Virginia - and the checker answers, for a state, a product and a size, whether the regime reaches the deal and whether what it makes the provider hand you includes a rate. Size limits are now recorded where the statute states one: over $500,000 is outside Florida and Virginia, over $1,000,000 is outside Utah, and New York covers up to $2,500,000.

6 September 2026 Correction — The site no longer says that two US states regulate commercial-financing disclosure. Six were confirmed against their own statutes, and the guides now separate the two that require an annualized rate (California, New York) from the four that require itemized dollar amounts only (Florida, Louisiana, Utah, Virginia). The question that matters to a borrower is not how many states have a rule, but whether the rule produces a rate you can hold against a bank quote.

6 September 2026 Correction — The cost tool reports an estimated effective annualized cost, not an effective annual rate. It is this site's own arithmetic, not a statutory APR, and the page now says where a statutory figure has to come from instead.

The whole change log