Factor Rate vs Interest Rate: What UK Businesses Need to Know

This article is part of our Merchant Cash Advance guide for UK businesses.

If you're comparing a merchant cash advance (MCA) with a revolving credit facility, one of the first things you'll notice is that they don't even use the same language to describe cost. An MCA provider quotes a factor rate. A revolving credit lender quotes an interest rate. These are not the same thing, and understanding the difference could save you thousands of pounds.

This guide explains both pricing models clearly, shows you how to calculate the real cost of each with worked examples, and helps you understand which structure gives you more control over what you ultimately pay.

What is a factor rate?

A factor rate is a multiplier used in merchant cash advance pricing. Rather than expressing cost as an annual percentage, an MCA provider multiplies your advance amount by the factor rate to determine the total you must repay.

How it works:

Total repayment = Advance amount x Factor rate

Illustrative example:

You receive a £50,000 merchant cash advance with a factor rate of 1.30.

£50,000 x 1.30 = £65,000 total repayment

You will repay £65,000, no matter how quickly or slowly you clear the advance. The £15,000 cost is locked in from the moment the funds land in your account.

Factor rates for UK SME MCAs typically sit between 1.10 and 1.50, though they can go higher for riskier profiles. The further above 1.0 the factor rate sits, the more expensive the advance.

The total cost is fixed and front-loaded. You know exactly what you'll pay in total from day one. There is no mechanism for paying less by repaying early because the cost has already been determined and baked into the repayment figure.

What this means in practice

A hospitality business in Manchester takes a £40,000 MCA at factor rate 1.28 to cover a kitchen refit before the summer season. Total repayment: £51,200. The advance clears in 5 months because trade is strong. Total cost: £11,200. If trade had been slow and it took 10 months to clear: total cost still £11,200. The factor rate does not care how long you take.

What is an interest rate?

An interest rate is the cost of borrowing expressed as a percentage of the outstanding balance, charged over time, typically monthly or annually.

With a revolving credit facility, you pay interest only on the amount you have drawn, for the period you have it drawn. As you repay, the interest charge reduces. If you repay early, your total cost goes down.

How it works:

Monthly interest cost = Drawn balance x monthly interest rate

Illustrative example:

You draw £50,000 from a revolving credit facility at a monthly rate of 2% (illustrative only).

If you repay the full £50,000 in 3 months, total illustrative interest is roughly £3,000. If you take 6 months, it is roughly £6,000. If you take 12 months, it is roughly £12,000.

The total cost is variable. It depends entirely on how long you hold the balance. Repaying faster reduces your total cost. This is the structural opposite of an MCA.

These are illustrative figures only. Actual rates depend on individual circumstances, lender terms, and credit assessment. Always request a representative APR before committing to any credit product.

What this means in practice

A professional services firm in Bristol draws £50,000 from a revolving facility to bridge a gap between two large client invoices. Both invoices land within 6 weeks. The firm repays the full £50,000 six weeks after drawing. Total interest cost at a 2% monthly illustrative rate: roughly £1,500. If the same £50,000 had been an MCA at factor rate 1.25, the cost would have been £12,500, regardless of how quickly the invoices arrived. The revolving facility saved the firm over £11,000 in this scenario, simply because it could repay quickly.

Comparing the two: a worked example

To make the comparison concrete, let's model the same scenario under both structures using a fictional UK business.

Meet Northside Kitchens Ltd a mid-sized kitchen retailer based in Leeds, turning over £1.8 million per year. They need £60,000 to fund a bulk stock purchase before their peak autumn season. They expect to clear the borrowing within 6 months as sales come in.

Option A: Merchant cash advance (factor rate 1.28)

Advance amount£60,000Factor rate1.28Total repayment£76,800Total cost of funds£16,800Repayment mechanismHoldback on card takingsCost if repaid in 3 months£16,800 (fixed)Cost if repaid in 6 months£16,800 (fixed)Cost if repaid in 12 months£16,800 (fixed)

Illustrative example only.

Option B: Revolving credit facility (2% monthly, illustrative)

Amount drawn£60,000Monthly interest rate2% (illustrative)Cost if repaid in 3 months~£3,600Cost if repaid in 6 months~£7,200Cost if repaid in 9 months~£10,800Cost if repaid in 12 months~£14,400

Illustrative figures only. Actual rates vary by lender, credit profile, and facility terms.

At a 6-month repayment horizon, the revolving credit facility costs Northside Kitchens Ltd roughly £9,600 less than the MCA. If they repay in 3 months, the saving is over £13,000. The MCA cost of £16,800 does not change, regardless of how strong their autumn sales turn out to be.

Why factor rates make comparison difficult

The challenge with factor rates is that they obscure the effective annual cost of borrowing. A factor rate of 1.25 sounds modest, but what does that actually cost per year?

Converting a factor rate to an approximate APR:

This is a simplified calculation and should be treated as illustrative only, but it gives you a sense of scale.

If you advance £50,000 at factor rate 1.25 and repay over 6 months:

If the same advance is repaid in 3 months:

This illustrates an important point. The faster you repay an MCA, the higher its effective annual rate becomes. The factor rate locks in the cost regardless, which means if your card sales are strong and the holdback clears quickly, you've paid a very high annualised rate for a short-term facility. Strong trading performance actually makes the MCA more expensive in annualised terms.

These are illustrative conversions only. Actual APR calculations involve compounding and other variables. Ask your lender for the representative APR, which they are required to disclose for regulated credit products.

The transparency difference

Regulated credit (revolving facility): UK lenders offering regulated credit products are required by the FCA to disclose a representative APR. This gives you a standardised number you can compare across lenders and products. You know what you're comparing.

Merchant cash advances: MCAs are not regulated as credit agreements in the UK in the same way. Providers are not required to quote APR. Factor rates are disclosed, but they don't carry the same regulatory disclosure framework as regulated credit. This makes comparison harder. You need to do the conversion yourself, or ask the provider to do it for you.

This is not to say MCAs are inherently predatory. For many businesses, the speed and accessibility of an MCA is genuinely valuable. But the lack of a standardised cost metric means you cannot simply compare a factor rate to an interest rate without doing the maths first.

The stacking problem: when MCA costs compound

One pattern that significantly increases the real cost of factor rate finance is stacking: taking a second MCA before the first is fully repaid. UK businesses in high-growth or cash-tight situations sometimes do this because the MCA provider offers a renewal or top-up.

The cost compounds fast. A business that stacks two MCAs, each at factor rate 1.28, on a £60,000 principal is not paying 28% more than they would with a revolving facility. They could easily be paying two to three times as much over a 12-month period, once the fixed costs of both advances are totalled.

The revolving credit structure avoids this entirely. You draw and repay from the same facility, with interest only on the amount outstanding. There is no stacking because there is no need to take a separate advance each time you need capital.

When each pricing structure might work in your favour

Factor rate pricing (MCA) may suit you if:

Interest rate pricing (revolving credit) may suit you if:

How Juice Flex fits in

Juice Flex is a revolving credit facility for UK SMEs, sized from £50,000 to £1,000,000. Interest accrues only on the amount drawn, for the period you hold it. Repay faster and you pay less. Draw again without reapplying.

For businesses that have been using MCAs and are now in a position to qualify for a regulated revolving facility, the switch typically results in meaningful cost savings, particularly for businesses that can repay within 3 to 6 months of each draw.

Juice is FCA registered. Juice Flex is subject to status and lending criteria. You can check your eligibility online with no impact to your credit score.

The question to ask before you commit

Before accepting any business finance offer, ask one question:

"What is the total amount I will repay, and what happens to that figure if I repay early?"

For an MCA, the total repayment figure won't change. Early repayment saves you nothing. You'll pay the factor-rate cost regardless.

For a revolving credit facility, early repayment reduces total interest paid. Ask for the APR and a worked example at your expected repayment horizon.

Getting both figures in writing gives you an honest comparison, regardless of whether the product is quoted as a factor rate or an interest rate. Any reputable lender will give you this information without hesitation.

Key takeaways

Summary comparison table

Factor Rate (MCA)Interest Rate (Revolving Credit)Cost is...Fixed upfront, does not changeVariable, depends on how long you borrowEarly repayment benefitNone: total cost is locked inYes: repay faster, pay lessTransparencyFactor cost disclosed; APR not requiredAPR must be disclosed (regulated product)Repayment mechanismHoldback on card takingsScheduled or flexible repaymentsBest for...Fast, once-off advance with a known and acceptable costOngoing or cyclical borrowing where you want cost control

Understanding these two pricing structures is the foundation of making a smart decision between a merchant cash advance and a revolving credit facility. The headline number, whether a factor rate of 1.28 or a monthly rate of 2%, means very little without understanding how it translates to your actual situation, your repayment speed, and your total cost over time.

Next steps

If you'd like to compare how Juice Flex revolving credit would work for your specific borrowing amount and timeline, you can start an application online with no impact to your credit score.

Check your eligibility with Juice Flex

Subject to status and lending criteria. Juice Flex is provided by Juice Ventures Limited, registered with the Financial Conduct Authority.

Related guides and resources

Updated on 7 May 2026.