Two offers land in your inbox. One says 14%. One says 1.28. A third says "$1,450 a week for eleven months." They are not comparable in the form they arrive in, and that is not an accident — pricing in different units is how expensive money hides next to cheap money.
Here's how to put all three in the same units in about ten minutes.
Why rate is the wrong number to lead with
Rate tells you the price of money per year. It tells you nothing about how long you'll hold it, what fees came off the top, or whether paying it off early does anything for you. A 14% APR term loan with a 5% origination fee and a 60-month term costs vastly more in absolute dollars than a 1.28 factor advance repaid over eight months — and vastly less as a percentage.
Which matters depends on the question you're actually asking. If you're asking "what's the cheapest way to hold this money," use effective APR. If you're asking "what will this cost me in total," use dollars. Most business owners care about the second and get sold on the first.
The single most useful discipline: never compare two offers until both are expressed as (a) total dollars repaid, and (b) effective annualized rate. Everything else is marketing.
Convert everything to total dollars first
Total repayment is the easiest number to compute and the hardest to argue with.
- Term loan: payment × number of payments, plus any fee deducted from funding.
- Revenue advance: amount advanced × factor rate. That is the entire obligation.
- Line of credit: harder, because it depends on usage. Model your realistic average drawn balance rather than the full line.
- Factoring: fee percentage × invoice value × the number of 30-day periods your customers actually take.
Then subtract what you actually received. If a $100,000 offer carries a 4% origination fee deducted at funding, you received $96,000 — and your cost of capital should be calculated on $96,000, not $100,000. This one adjustment changes the ranking of offers more often than anything else.
Converting a factor rate to APR, properly
A factor rate is a flat multiplier. Borrow $100,000 at 1.28 and you owe $128,000 — $28,000 in cost, regardless of how long you take.
The naive conversion is to call that 28%. It isn't, because you don't hold the full $100,000 for the full term. With daily or weekly remittance, your average outstanding balance is roughly half the original. A rough approximation that gets you close enough to decide:
Effective APR ≈ (total cost ÷ amount received) × (12 ÷ months in term) × 2
Run the numbers on a 1.28 factor over nine months: ($28,000 ÷ $100,000) × (12 ÷ 9) × 2 ≈ 75%. That is the number to put beside the 14% term loan — not 28%.
This isn't an argument against advances. It's an argument for knowing what you're signing. A 75% APR on $40,000 that unlocks a $180,000 contract is a fine trade. The same 75% covering a recurring shortfall is not.
The four contract clauses that matter more than the rate
1. Early payoff treatment
On a term loan, interest accrues on the outstanding balance, so early payoff saves real money. On an advance, the obligation is fixed — unless the contract contains an early-payoff discount. Ask for it explicitly, in writing, before signing. Its absence is worth more than a small rate difference.
2. Stacking restrictions
Most funding agreements prohibit taking additional positions without consent. Violating it can trigger a default and immediate acceleration of the full balance. Know what you're agreeing to before you take the next call from a competing funder.
3. Reconciliation rights
On revenue-based products, the remittance is supposed to flex with sales. Some contracts include a reconciliation provision letting you request an adjustment when revenue drops; some don't. That clause is the difference between a bad quarter and a default.
4. Confession of judgment and personal guarantee scope
Read what you're personally standing behind and under what conditions. A guarantee limited to fraud and misrepresentation is very different from an unconditional one. This is a paragraph worth showing to an attorney.
A worked comparison
| Term | Offer A | Offer B | Offer C |
|---|---|---|---|
| Type | Term loan | Revenue advance | Line of credit |
| Amount | $100,000 | $100,000 | $100,000 line |
| Headline price | 18% APR | 1.28 factor | 16% on drawn |
| Fee at funding | 3% ($3,000) | 2% ($2,000) | 1% per draw |
| Term | 24 months | 9 months | 12 months revolving |
| Total repaid | $119,800 | $128,000 | ~$109,000 at 65% average usage |
| Effective APR | ~21% | ~75% | ~17% |
| Early payoff saves | Yes | No, unless negotiated | Yes |
Offer C is cheapest if your usage assumption holds. Offer A is cheapest if you'll hold the full balance. Offer B is only rational if speed or credit access rules the other two out — which, for plenty of businesses, it does. The point isn't that one is right. It's that you can now see what you're choosing between.
Six questions to ask before you sign anything
- What is the total dollar amount I will repay?
- What is deducted from funding, and what will actually hit my account?
- Is there an early-payoff discount, and can I see it in the contract?
- What happens to my remittance if revenue drops 30%?
- Am I permitted to take additional funding while this is outstanding?
- What exactly am I personally guaranteeing?
Any funder who won't answer all six in writing has told you something useful about what happens if things go wrong.
If you're holding an offer right now — from us or anyone else — send it over. We'll convert it to total dollars and effective APR and tell you honestly whether it's competitive, at no cost and with no obligation.