Factor fees vs annual rates
Factor rates vs APR: why US business finance costs are not comparable
Merchant Cash Advances at 15%–40% (factor fee) against Business Term Loans at 7%–45% (annual rate), compared across 40 US providers on cost, term, speed, and eligibility.
For US business owners and advisors trying to compare quotes that are priced on different conventions.
| Dimension | Merchant Cash Advances | Business Term Loans |
|---|---|---|
| Published cost | 15%–40% | 7%–45% |
| What the cost measures | Factor fee | Annual rate |
| Typical term | 3–18 months | 4 months to 25 years |
| Fastest published funding | 24 hours | 24 hours |
| Lowest published FICO minimum | 600 | 500 |
| Median published revenue floor | $120,000 | $120,000 |
| Shortest published trading history | 4 months | 3 months |
| Providers compared | 20 | 20 |
| Provider | Product | Published cost | What it measures | Term | Funding speed | Published criteria |
|---|---|---|---|---|---|---|
| Bitty Advance | Merchant Cash Advances | 15%–30% | Factor fee | 3–12 months | 24–48 hours | Requires at least 4 months in business and $60,000+ in annual revenue. |
| Credibly | Merchant Cash Advances | 15%–35% | Factor fee | 6–15 months | 24–48 hours | Requires at least 6 months in business and $180,000+ in annual revenue. |
| Fora Financial | Merchant Cash Advances | 15%–35% | Factor fee | 4–15 months | 24–48 hours | Requires at least 6 months in business and $180,000+ in annual revenue. |
| Libertas Funding | Merchant Cash Advances | 15%–32% | Factor fee | 6–18 months | 48 hours to 1 week | Requires at least 2 years in business and $600,000+ in annual revenue. |
| Mulligan Funding | Merchant Cash Advances | 15%–35% | Factor fee | 4–18 months | 24–48 hours | Requires at least 1 year in business and $120,000+ in annual revenue. |
| Rapid Finance | Merchant Cash Advances | 15%–38% | Factor fee | 3–18 months | 24–48 hours | Requires at least 1 year in business and $120,000+ in annual revenue. |
| Fundkite | Merchant Cash Advances | 18%–38% | Factor fee | 3–15 months | 24–48 hours | Requires at least 6 months in business and $120,000+ in annual revenue. |
| Headway Capital MCA | Merchant Cash Advances | 18%–35% | Factor fee | 4–15 months | 24–48 hours | Requires at least 1 year in business, $50,000+ in annual revenue and a 600+ FICO score. |
| Chase Business Term | Business Term Loans | 7%–12% | Annual rate | 1–7 years | 2–3 weeks | Requires at least 2 years in business, a 680+ FICO score and an existing Chase business banking relationship. |
| Wells Fargo Term | Business Term Loans | 7%–12% | Annual rate | 1–10 years | 2–4 weeks | Requires at least 2 years in business and an existing WF business banking relationship. |
| Bank of America Term | Business Term Loans | 7.5%–12% | Annual rate | 1–5 years | 2–4 weeks | Requires at least 2 years in business and an existing BofA business banking relationship. |
| Live Oak Bank (SBA) | Business Term Loans | 7.5%–10% | Annual rate | 10–25 years | 4–6 weeks | Requires at least 2 years in business and a 680+ FICO score. |
| SmartBiz | Business Term Loans | 7.5%–10.25% | Annual rate | 10–25 years | 30–60 business days | Requires at least 2 years in business and a 680+ FICO score. |
| US Bank Term | Business Term Loans | 7.5%–13% | Annual rate | 1–7 years | 1–3 weeks | Requires at least 2 years in business and an existing US Bank business banking relationship. |
| Celtic Bank (SBA) | Business Term Loans | 7.75% and up | Annual rate | 10–25 years | 3–6 weeks | Requires at least 2 years in business and a 680+ FICO score. |
| Newtek Business Finance | Business Term Loans | 7.75%–10% | Annual rate | 10–25 years | 3–6 weeks | Requires at least 2 years in business and $50,000+ in annual revenue. |
These costs are quoted on different bases and are not directly comparable
- Factor fee
- A fee on the total advanced, not an annual rate. Because it is charged in full over a repayment period shorter than a year, the equivalent annualised cost is materially higher than the number shown.
- Annual rate
- Quoted as an annual rate on the outstanding balance.
What actually separates them
This is the single most consequential misunderstanding in small business finance. A factor fee is charged on the total amount advanced and is owed in full regardless of how quickly the advance is repaid. An annual percentage rate accrues over time against an outstanding balance that reduces as the loan amortises. They are not the same quantity, they do not respond the same way to early repayment, and the smaller number is very often the more expensive facility.
The gap is created by time. A fee charged in full over a repayment period of a few months annualises into a much larger figure than the same number expressed as an annual rate, and because the fee does not reduce with early repayment, paying an advance off sooner raises its effective annualised cost rather than lowering it. That is the opposite of how an amortising loan behaves, and it is the intuition most borrowers bring to the comparison.
- Merchant Cash Advances: 15%–40% (factor fee)
- Business Term Loans: 7%–45% (annual rate)
- Merchant Cash Advances term: 3–18 months
- Business Term Loans term: 4 months to 25 years
Why the headline numbers cannot be compared directly
The two products are quoted on different bases, which is the most common source of error when businesses weigh them against each other. The cost of merchant cash advances is quoted as a factor fee: A fee on the total advanced, not an annual rate. Because it is charged in full over a repayment period shorter than a year, the equivalent annualised cost is materially higher than the number shown. The cost of business term loans is quoted as an annual rate: Quoted as an annual rate on the outstanding balance.
Set side by side without that context, 15%–40% and 7%–45% appear to be the same kind of quantity. They are not. Converting either into a comparable annualised figure requires the drawn amount, the actual repayment period, and the full fee schedule — none of which appear in a published range. Any comparison that skips this step will reach a confident conclusion that happens to be wrong.
- Factor fee: A fee on the total advanced, not an annual rate. Because it is charged in full over a repayment period shorter than a year, the equivalent annualised cost is materially higher than the number shown.
- Annual rate: Quoted as an annual rate on the outstanding balance.
When each one fits
A factor-priced advance can still be the right instrument where speed is decisive, where the alternative is a lost order or a stock-out, and where the return on the funded activity comfortably exceeds the full cost of the advance rather than its headline number.
An annually-priced term facility is generally the lower-cost structure where the business qualifies and the timeline allows. The relevant comparison is not the two headline figures but the total amount repaid and the effect on cash flow over the actual repayment period.
Before choosing between them
When comparing quotes, ask every provider for the total dollar amount repayable and the repayment period, then compare those two figures directly. It is the only comparison that works across pricing conventions, and any provider unwilling to state it plainly has told you something useful.
Caplift's assessment compares structures on a consistent basis using the business's own figures rather than published ranges, and produces a readiness view alongside it. Caplift is not a lender and does not approve, originate, or guarantee financing — the decision remains with the business and its advisors.
Common questions
Questions businesses ask
Are merchant cash advances cheaper than business term loans?
The published figures — 15%–40% for merchant cash advances and 7%–45% for business term loans — are quoted on different bases and cannot be compared directly. Factor fee and annual rate measure different things over different periods, so the smaller number is not reliably the cheaper facility.
Which funds faster, merchant cash advances or business term loans?
The fastest published timeline is 24 hours for merchant cash advances and 24 hours for business term loans. Published timelines assume a complete file and exclude the preparation time before submission, which is usually the larger part of the calendar.
Which has easier eligibility requirements?
Across the providers compared here, the lowest published FICO minimum is 600 for merchant cash advances and 500 for business term loans. Published minimums gate consideration only — approval depends on the whole file, and an easier published threshold usually corresponds to a higher cost or a tighter structure elsewhere.
Does Caplift lend or earn a fee from either product?
No. Caplift Financial Inc. is software and is not a lender. Providers are compared from published information, inclusion is not an endorsement, and appearing here does not indicate a commercial relationship with Caplift.
About this data, and its limits
- Figures are drawn from Caplift's Q1 2026 lender catalogue review and are indicative, not quotes. Curated from named US lenders; confirm individual terms before relying on them.
- Compared across 20 merchant cash advances providers and 20 business term loans providers that publish indicative pricing. The provider table below shows the lowest-cost eight from each product; the full sets appear on the individual product guides.
- Inclusion is not an endorsement, a recommendation, or an offer, and does not indicate a commercial relationship with Caplift. Pricing and criteria change without notice — confirm current terms directly with the provider before relying on them.
- Caplift compiles this information to the best of its ability from publicly available provider material, but does not guarantee that it is accurate, complete, or current, and accepts no liability for decisions made in reliance on it. Figures may be out of date or incorrect. Verify anything you intend to act on directly with the provider.
- Caplift Financial Inc. is not a lender and does not approve, originate, or guarantee financing. Nothing on this page is legal, financial, tax, accounting, or investment advice, and it should not be treated as a substitute for advice from a qualified professional who knows your circumstances.