Canadian business owners comparing financing options keep running into the same number and not knowing what to do with it: 1.35. Or 1.18. Or 1.49. That number is a factor rate, and it determines exactly how much a merchant cash advance is going to cost you. It works nothing like an interest rate, and if you read it the same way, you will significantly underestimate what you owe.
Factor rates are straightforward once you know how the math works. This guide explains what they are, how to calculate the total cost of a merchant cash advance in minutes, and what to watch for when comparing offers from different lenders.
What is a factor rate and how does it work
A factor rate is a decimal multiplier applied to the amount you borrow to determine the total repayment amount. It is not an annual percentage rate (APR) and it does not compound over time. You pay the same total amount whether you repay in 4 months or 8 months.
The core formula
Total Repayment = Advance Amount x Factor Rate
Example: a $50,000 advance at a factor rate of 1.35 means you repay $67,500 total. The cost of the financing is $17,500, regardless of how quickly or slowly you repay.
Factor rates for merchant cash advances in Canada typically fall between 1.15 and 1.55. Where your rate lands depends on monthly revenue volume, average daily balance, industry, time in business, and how consistent your deposit history looks.
What a factor rate does not tell you
Because repayment is tied to a percentage of your daily deposits, the effective APR on an MCA rises sharply if you repay quickly. A 1.35 factor rate paid back in 4 months translates to a very different annualized cost than the same rate paid back in 10 months. If comparing MCAs to term loans, convert both to total repayment cost over the same period, not to APR, for a fair comparison.
A real Canadian example: the math in practice
A plumbing contractor in Mississauga was declined by three banks because his credit score sat at 598 and his incorporated business was only 14 months old. His card volume was $38,000 a month. An alternative lender read his full file, offered $40,000 at a 1.32 factor rate, and he repaid in 6 months through daily deposit holdbacks of roughly 12%.
Total cost: $12,800. He knew exactly what he was paying before he signed.
That is the right way to evaluate a merchant cash advance: calculate the total cost, understand your holdback percentage, and decide if the revenue opportunity on the other side justifies the financing cost. A factor rate of 1.35 is not inherently expensive or cheap. The question is what you are doing with the capital.
For a restaurant owner in Calgary spending $30,000 on equipment that generates $8,000 a month in additional table revenue, a $30,000 advance at a 1.35 factor rate costs $10,500 and pays for itself in two months. For the same owner using the same advance to cover a slow January with no revenue plan behind it, the math looks very different.
How to calculate your holdback and repayment timeline
Most MCA agreements show three numbers: advance amount, factor rate, and holdback percentage. The holdback is the portion of your daily deposits the lender takes until the advance is repaid. It typically runs between 8% and 20%.
Step 1: Calculate your daily holdback amount
Daily Holdback = Average Daily Deposits x Holdback Percentage
If your business deposits an average of $4,000 per day and the holdback is 12%, approximately $480 goes to repayment each business day.
Step 2: Estimate your repayment term
Estimated Repayment Term (days) = Total Repayment / Daily Holdback
At $480 per day, a $54,000 total repayment takes roughly 113 business days, or about 5.5 months. If your deposits drop, repayment slows. If they increase, repayment accelerates. This is how merchant cash advances flex with your revenue cycle, unlike a fixed-payment term loan.
Step 3: Evaluate the cost against the opportunity
Evaluate the factor rate alongside the repayment term, the holdback percentage, and what the capital is actually for. Those three numbers together give you the full picture of whether the advance makes sense for your business.
How Solid Capital prices merchant cash advances
At Solid Capital, factor rates are set by reading the full file: monthly revenue, deposit consistency, industry, and time in business. A business with $60,000 in monthly deposits and a clean 6-month statement history is going to see a different rate than one with $20,000 and two NSF events. The full file matters more than the credit score.
Applying through Solid Capital takes five minutes and does not affect your credit score. A Canadian advisor reviews every business financing file personally before a decision is made. For approved files, funding can arrive in as little as 24 hours. If you want to see what the process looks like step by step, the our process page walks through it from application to funding. You can also read more guides on the Solid Capital blog, including how merchant cash advances compare to business term loans.
The bank looks at one number. A factor rate makes the cost visible upfront. That transparency is worth something.
Frequently Asked Questions
What is a factor rate on a merchant cash advance?
A factor rate is a decimal multiplier used to calculate the total repayment on a merchant cash advance. Multiply your advance amount by the factor rate to get your total repayment. For example, a $50,000 advance at a 1.35 factor rate means you repay $67,500 in total.
What factor rate can I expect on a merchant cash advance in Canada?
Factor rates for merchant cash advances in Canada typically range from 1.15 to 1.55, depending on monthly revenue, average daily balance, industry, time in business, and deposit consistency.
Is a factor rate the same as an interest rate?
No. A factor rate is a flat multiplier applied to the advance amount. It does not compound over time. You pay the same total cost whether you repay in 4 months or 10 months. An interest rate accrues on the outstanding balance over time.
How does the holdback percentage work?
The holdback percentage is the portion of your daily deposits the lender collects until the advance is repaid. It typically runs between 8% and 20%. If your business deposits $4,000 per day and the holdback is 12%, approximately $480 goes toward repayment each business day.
Does applying for a merchant cash advance affect my credit score?
At Solid Capital, applying does not affect your credit score. A soft pull is done to verify identity, not to issue a hard inquiry on your credit file.
