What is a factor rate?

You need the repayment period as well as the factor rate. Work out the monthly rate that makes the repayments worth the amount advanced today, then multiply by 12 for a yearly figure. A factor rate of 1.25 on £30,000 repaid over five months is about 7.9% a month, or 95% a year. Over ten months it is about 4.3% a month, or 51% a year.

No. A factor rate is a multiple of the amount advanced, fixed on the day of the advance. An annual percentage rate is a yearly cost that takes account of when each payment is made. The same factor rate gives a different yearly cost for every repayment period, and a shorter period gives a higher one.

A factor rate cannot be judged on its own, because the cost depends on how long the advance takes to repay. Turn the offer into a monthly and yearly cost at your expected repayment period, add any fees, and compare the total in pounds with the cost of a loan or facility for the same amount and period.

Not unless the provider agrees. The total repayable is fixed by the factor rate when the advance is made, so repaying sooner raises the yearly cost and leaves the total unchanged. Ask whether the provider offers an early settlement discount, and get its terms in writing.

Because the repayment period is not fixed. An advance repaid from a share of card takings may clear in a few months or take a year, so the provider sets a fixed total on the day of the advance. That shifts the risk of a long repayment period onto the provider and the cost of a short one onto you.

A merchant cash advance gives you a lump sum now in exchange for a share of your future card takings until a fixed total has been repaid. The total is set by a factor rate, so the cost in pounds is fixed from the start, and the sooner you pay it back, the higher the cost works out as a yearly rate. It suits businesses that take most of their sales by card and have uneven months. The full answer.

You can if the loan agreement allows it, and the agreement sets the cost: an early repayment charge, a break cost on a fixed rate, or interest to the day you repay. For regulated credit to a sole trader or small partnership, the Consumer Credit Act 1974 gives a right to repay early and caps what the lender can claim. The full answer.

A business loan is a sum your business borrows and repays with interest over a fixed term, in regular instalments. The lender prices it on the risk it reads in your accounts, your bank statements and any security you offer. Compare offers on the total you will pay in pounds, counting every fee. The full answer.

Working capital finance pays for the gap between paying for stock, wages and suppliers and being paid by your customers. The right product depends on where the cash is stuck: in unpaid invoices, in stock, in a tax bill or in a seasonal dip. Each one is repaid from trading cash coming in, so it suits a timing gap in a business that trades at a profit. The full answer.