function calculateFactorRate() {
// 1. Get Input Values
var advanceAmount = document.getElementById('advanceAmount').value;
var factorRate = document.getElementById('factorRate').value;
var termMonths = document.getElementById('termLength').value;
// 2. Validate Inputs
if (advanceAmount === "" || factorRate === "" || termMonths === "") {
alert("Please fill in all fields to calculate.");
return;
}
var amount = parseFloat(advanceAmount);
var rate = parseFloat(factorRate);
var months = parseFloat(termMonths);
if (amount <= 0 || rate < 1 || months <= 0) {
alert("Please enter valid positive numbers. Factor rate should be at least 1.0.");
return;
}
// 3. Calculation Logic for Factor Rate
// Unlike interest rates, factor rates apply to the whole principal immediately.
// Total Repayment = Principal * Factor Rate
var totalRepayment = amount * rate;
// Total Cost (Fees) = Total Repayment – Principal
var totalCost = totalRepayment – amount;
// Monthly Payment = Total Repayment / Number of Months
var monthlyPayment = totalRepayment / months;
// Effective APR Calculation (Approximation)
// Formula: ((Total Cost / Principal) / (Term in Days / 365)) * 100
// We use months, so: ((Total Cost / Principal) / (Months / 12)) * 100
var annualizedRate = ((totalCost / amount) / (months / 12)) * 100;
// 4. Update DOM Elements
document.getElementById('monthlyPaymentDisplay').innerHTML = "$" + monthlyPayment.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('totalRepaymentDisplay').innerHTML = "$" + totalRepayment.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('totalFeeDisplay').innerHTML = "$" + totalCost.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('aprDisplay').innerHTML = annualizedRate.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2}) + "%";
// Show Results
document.getElementById('results').style.display = "block";
}
Understanding Monthly Factor Rates
In the world of business financing, particularly with Merchant Cash Advances (MCAs) and short-term alternative lending, costs are rarely expressed as a standard Annual Percentage Rate (APR). Instead, lenders use a metric known as a Factor Rate.
This Monthly Factor Rate Calculator is designed to help business owners decode the true cost of their financing by converting simple factor rates into tangible monthly payment obligations and annualized percentage equivalents.
Factor Rate vs. Interest Rate
A Factor Rate (usually expressed as a decimal like 1.2 or 1.35) applies to the original advance amount regardless of how quickly you pay it off. Unlike a traditional interest rate, the principal does not amortize in a way that reduces interest accrual over time. The total fee is fixed upfront.
How the Calculation Works
Calculating the cost of a factor rate advance involves straightforward multiplication rather than complex compounding formulas. Here is the logic used in the calculator above:
Total Repayment: This is calculated by multiplying the Funding Amount by the Factor Rate. For example, $10,000 × 1.20 = $12,000.
Total Cost of Financing: This is the difference between what you repay and what you received. ($12,000 – $10,000 = $2,000 fee).
Monthly Payment: The Total Repayment is divided by the Term Length in months.
Effective APR: While factor rates look low (1.20 looks like 20%), because the term lengths are often short (e.g., 6 months), the annualized cost is often significantly higher. The calculator estimates this APR to provide a comparison against traditional bank loans.
Example Scenario
Let's say a business receives an offer for a $50,000 advance with a factor rate of 1.35 over a term of 9 months.
Total Payback: $50,000 × 1.35 = $67,500
Cost of Money: $17,500
Monthly Payment: $67,500 ÷ 9 = $7,500 per month
Using the calculator helps ensure you have sufficient cash flow to handle these high monthly outflows before signing an agreement.
Why Convert to APR?
It is critical to convert a factor rate to an APR to understand the "apple-to-apples" cost of capital. A factor rate of 1.15 over 3 months is vastly more expensive (annualized) than a factor rate of 1.15 over 12 months. This tool performs that conversion instantly, revealing that short-term factor rate loans often carry effective APRs ranging from 40% to over 100%.