Decoding Loan APRs and Factor Rates: A Guide for SMBs

Mark Jorgenson
February 27th, 2024
2 min read


Small and medium-sized businesses (SMBs) often find themselves navigating a maze of financial terms when seeking funding. Two terms that frequently come up are Loan APRs (Annual Percentage Rates) and Factor Rates. While both are used to express the cost of borrowing, they represent different aspects of a loan. In this guide, we'll break down the differences between Loan APRs and Factor Rates to help SMBs make informed decisions about their financing options.

Understanding Loan APRs

Loan APRs are a comprehensive representation of the total cost of borrowing over a year, expressed as a percentage. This figure includes not only the interest rate but also any additional fees and charges associated with the loan. Loan APRs are useful for comparing the overall cost of different loan products, providing borrowers with a standardized metric to assess and compare their options.

Factor Rates Unveiled

On the other hand, factor rates are a simplified way of expressing the cost of a loan. Instead of being an annualized percentage, factor rates are presented as a decimal or a multiplier applied to the loan amount to determine the total repayment. While factor rates exclude some of the nuances included in Loan APRs, they offer a clear and straightforward understanding of the cost of funds.

Key Differences

Inclusion of Fees:

  1. Loan APRs: Encompass all costs associated with the loan, including interest, fees, and other charges.
  2. Factor Rates: Primarily focus on the cost of capital, excluding some fees and charges.

Time Frame:

  1. Loan APRs: Represent the annual cost of borrowing.
  2. Factor Rates: Typically applied to short-term loans and may not reflect the annualized cost.

Ease of Understanding:

  1. Loan APRs: Provide a comprehensive but sometimes complex view of the borrowing cost.
  2. Factor Rates: Offer simplicity and clarity, making it easier for borrowers to grasp the total repayment amount.

Here is a real example of how these options stack up:

Fee Breakdown

Choosing the Right Metric for Your Business

For Transparency: If you value a comprehensive understanding of your loan's true cost and plan for a long-term commitment, Loan APRs are crucial.

For Quick Comparison: If simplicity and a quick assessment of borrowing costs are more important to you, Factor Rates can provide a straightforward perspective.


At Boundless, we can help you understand what these options (and others) look like and how they can positively impact your business. Get started today or reach out to our team at

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