Factor rates are how revenue-based financing products express their cost — but the way they're marketed often obscures the actual cost of capital. Toast Capital's factor rates look reasonable on paper. The structural details of how those factors translate into real cost reveal a more nuanced picture. Here's what most operators miss.
What a Factor Rate Actually Is
A factor rate is a multiplier on the principal. A 1.30 factor on a $100K advance means you repay $130K total. That's $30K in financing cost on $100K of capital, regardless of how long repayment takes. Factor rates are NOT APR — they don't decrease if you pay back faster. The total amount owed is fixed at signing.
Why Factor Rates Aren't Directly Comparable to APR
An APR loan: pay it back faster, save interest. A factor rate advance: pay it back faster, save no money. The total cost is locked in at funding. This makes factor-rate products structurally more expensive than they look when compared to APR products on the surface — and structurally less expensive than APR products if you would have prepaid a long term loan early anyway.
Toast Capital's Factor Rate Range
Toast Capital factor rates typically run 1.20-1.45 depending on the operator's profile. The lower end (1.20-1.25) is reserved for operators with strong credit, long Toast history, and consistent revenue. The higher end (1.35-1.45) applies to weaker credit profiles or shorter Toast tenure. Average operator falls around 1.28-1.32.
The Hidden Cost of Holdback Mechanics
Toast Capital's daily POS holdback creates a hidden compounding effect: every day you're in repayment, the holdback is reducing your operating cash flow. Many operators end up borrowing AGAIN before fully paying off the first advance, because the holdback creates the cash gap that drives the next financing need. This 'evergreening' pattern is structurally expensive.
How to Calculate Effective Annualized Cost
Take total fees ($30K on a $100K advance at 1.30 factor) divided by average outstanding balance ($50K assuming straight-line repayment over the term) divided by years in repayment (1 year for a 12-month repayment timeline). $30K / $50K / 1 = 60% effective annualized cost. That's substantially higher than the 30% the factor rate suggests.
What to Compare Across Offers
Total dollars in (the advance amount). Total dollars out (the total repayment amount). Time to full repayment at your realistic revenue. Repayment mechanic (fixed payment vs holdback). Implications for additional capital access during the repayment period. Compare these five things across any offers — Toast Capital and independent — and you'll see clearly which is structurally better for your operation.
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