Short-term loans also often come with factor rates instead of interest rates: a factor rate is a number that, when multiplied by your total loan amount, gives you how much you’ll be paying the lender back.
Short-term business loans are paid off quickly, most often with daily payments. On the one hand, you don’t have to worry about that debt for too long. But on the other, repaying a short-term loan in daily or weekly installments could cut into your cash flow.
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A bit confused? Don’t worry—let’s explain with an example.
Say you’ve taken out a $100K short-term business loan and the lender has a 1.18 factor rate.
1.18 multiplied by $100K is the total amount you’ll need to pay back: $118K.
Then we’ll assume your lender will want you to pay back the total amount in 12 months, like with most short-term loans. Given that there are 22 payment days in a month, that’s 264 payments you’d have to make.
And how much are shelling out every day for this loan?
The amount of each of those payments would be $446.96, making your actual APR 33.54%—quite a bit higher than the rates for traditional term loans.
Say you’ve taken out a $100K short-term business loan and the lender has a 1.18 factor rate.
1.18 multiplied by $100K is the total amount you’ll need to pay back: $118K.
Then we’ll assume your lender will want you to pay back the total amount in 12 months, like with most short-term loans. Given that there are 22 payment days in a month, that’s 264 payments you’d have to make.
And how much are shelling out every day for this loan?
The amount of each of those payments would be $446.96, making your actual APR 33.54%—quite a bit higher than the rates for traditional term loans.
A bit confused? Don’t worry—let’s explain with an example.
Short-term loans also often come with factor rates instead of interest rates: a factor rate is a number that, when multiplied by your total loan amount, gives you how much you’ll be paying the lender back.
Short-term loans also often come with factor rates instead of interest rates: a factor rate is a number that, when multiplied by your total loan amount, gives you how much you’ll be paying the lender back.