Can I compare a factor rate to an APR?

Why the direct comparison fails

A factor rate is a multiplier applied once. An APR is a price per year. A 1.20 factor is not "20%" of anything annual, and putting the two numbers in the same column ranks them by which is printed smaller.

The conversion is possible, but it requires the term, and the term is the input that changes the answer most. The site's guide on factor rate vs APR covers why the same deal looks different depending on the convention.

What to compare instead

Illustrative only — both offers are for $60,000.

Four columns, no conversion, nothing arguable. Offer 1 is cheaper per dollar borrowed. Offer 2 is finished in a quarter of the time and demands more than four times as much each month.

Then, if you still want a rate

Compute it yourself, the same way for both: solve for the periodic rate that makes the payments equal the cash received, then multiply by the number of periods in a year. Offer 1 gives 16.5%. Offer 2 gives 85.5%.

Both figures are honest. Neither replaces the outflow column, which is the one that decides whether you can take Offer 2 at all.

The column nobody computes: what if it takes longer

Offer 2's 26 weeks is an assumption, not a term. On a sales-based product the schedule moves with receipts, and the total does not move at all — which produces a result most people find backwards.

Illustrative only, same $60,000 advance, same $72,000 total, same $58,200 received:

• 26 weeks. $2,769.23 a week, $12,000 a month of outflow, about 85.5% annualised.
• 34 weeks. $2,117.65 a week, about $9,176 a month, about 65.9% annualised.
• 40 weeks. $1,800 a week, $7,800 a month, about 56.2% annualised.

Nothing was renegotiated. The cost in dollars is $13,800 in all three cases. A slower business pays a lower annual rate for the money and lives with the obligation longer; a faster one pays a higher annual rate and is finished sooner.

Two conclusions follow, and they matter more than the percentages. Any annualised figure quoted on a fixed-total product is a statement about an assumed term, so whoever quotes it should state the assumption. And the only figure in that list that cannot move is the $13,800.

The test that actually decides it

The rate comparison tells you which offer is cheaper. It does not tell you which you can take. That is a separate question with a separate answer.

Take the outflow column and set it against what the business actually produces. Illustrative only — if the business generates $9,000 a month of cash after every fixed cost, Offer 2 at $12,000 a month is not an expensive option, it is an impossible one, and the deal fails in month three regardless of how the annualised figure compares. Offer 1 at $2,909.20 fits inside $9,000 with room for a bad month.

So run three numbers before the rates:

1. Free cash per month, computed on your worst three months rather than your average.
2. The offer's outflow per month, at the contract's schedule, not the optimistic one.
3. The ratio between them. If the payment consumes most of what is left, the structure is wrong even when the price is fine.

When the expensive one is the right answer

Cost per dollar is not the only thing on the table. An advance that is genuinely more expensive can still be correct where the money buys something the cheaper facility cannot reach in time — a discounted inventory buy that pays for the fee outright, a contract that requires equipment on site next week, a payroll that keeps a crew together.

The discipline is to name the return. Write down what the money will earn, in dollars, and set it against the $13,800. If you cannot write the sentence, the speed is not worth the price, and the honest answer is to take longer and pay less.

Doing it in a spreadsheet

Build the four columns in a spreadsheet, one offer per row: cash received, total paid, cost per dollar received, and outflow per month. Every one of those comes straight off the term sheet or from a single division, and none of them requires a rate function. The rate column comes last, computed the same way for both rows, with the assumed term written in the cell beside it. When a funder disputes your figure, the disagreement will be about the term assumption, and having it in its own cell is how you find that out in one minute rather than three emails.

The rule to carry

Compare dollars first, timing second, rates last. Dollars cannot be restated by a pricing convention; rates can. And whenever you do quote a rate on a fixed-total product, state the term you assumed, because someone else quoting the same deal with a different term assumption will get a very different number and be equally correct.

The calculators will produce all six figures from the inputs. The method in full is in how to compare two offers with different structures.