Factor Rate Bad Credit Business Loans - A factor rate is a way of expressing the cost of a business loan or advance that is not based on an annual percentage rate (APR)1 A factor rate is usually a decimal number, such as 1.2 or 1.5, that is multiplied by the original loan amount to get the total amount owed.
For example, if you borrow $10,000 with a factor rate of 1.3, you will have to pay back $13,000 ($10,000 x 1.3).
Factor rates are often used for short-term loans and merchant cash advances, which are types of financing that provide fast and flexible funding for businesses that have bad credit or need cash quickly.
However, factor rates can also be very expensive and misleading, as they do not reflect the true cost of borrowing over time12 To compare different financing options, it is better to use the APR, which takes into account the interest rate, fees, loan term, and payment frequency.
To convert a factor rate to an APR, you can use this formula:
APR = (Total amount owed / Loan amount - 1) x (365 / Loan term in days) x 100%
For example, if you borrow $10,000 with a factor rate of 1.3 and a loan term of 90 days, the APR would be:
APR = ($13,000 / $10,000 - 1) x (365 / 90) x 100% APR = 0.3 x 4.06 x 100% APR = 121.8%
As you can see, the APR is much higher than the factor rate, and it shows how expensive this type of financing can be.
If you are looking for bad credit business loans, you should be aware of the factor rates and APRs of different lenders and products, and compare them carefully before making a decision You should also look for other factors, such as the loan amount, repayment terms, fees, and eligibility requirements.
Some of the best business loans for bad credit of February 2024 are:
- BlueVine: Offers invoice factoring and lines of credit with APRs ranging from 15% to 78%3
- Fundbox: Offers lines of credit and term loans with APRs ranging from 10.1% to 79.8%3
- Kabbage: Offers lines of credit with APRs ranging from 24% to 99%3
- OnDeck: Offers term loans and lines of credit with APRs ranging from 9% to 99%3
- StreetShares: Offers term loans, lines of credit, and invoice factoring with APRs ranging from 9% to 40%3
I hope this information helps you understand factor rates and bad credit business loans better. 😊