Total repayment ÷ advance amount = your cost multiple. Any number above 1.0× represents the premium you pay for access to that capital.
The Core Formula
The cost multiple formula is straightforward: divide total repayment by the advance amount received.
Cost Multiple = Total Repayment ÷ Advance Amount
A $150,000 advance with a total repayment of $195,000 produces a cost multiple of 1.30×. Every additional fee, origination charge, or administrative cost must be included in the total repayment figure for this number to be accurate.
This is the number to demand in writing before signing any revenue-based loan agreement.
What to Include in Total Repayment
Many operators calculate the cost multiple incorrectly because they exclude fees from the total repayment figure.
| Cost Component | Include in Total Repayment? | Notes |
|---|---|---|
| Principal repayment | Yes | Base advance amount |
| Factor rate premium | Yes | Core cost above principal |
| Origination fee | Yes | Often 1–3% of advance |
| Administrative fees | Yes | Processing, ACH, etc. |
| Prepayment discount | Adjust if applicable | Reduces total if taken |
| Renewal fees | Only if renewing | Don't include in initial calc |
Comparing Offers Using the Multiple
Once you have cost multiples for each offer, comparison becomes mechanical. But the multiple alone isn't the full picture — also calculate how long the repayment window is.
- A 1.30× multiple repaid over 6 months is more expensive than 1.30× over 12 months on an annualized basis
- Convert to effective APR: (Multiple - 1) ÷ Months × 12
- A 1.30× over 6 months = 60% effective APR; over 12 months = 30% APR
- The holdback percentage determines repayment duration — lower holdback = longer payoff window
For Magic Valley operators evaluating growth capital loans, the annualized rate often looks steep. The right question is whether the capital use case returns more than that annualized rate.
The Decision Threshold
A cost multiple is only good or bad relative to the return generated by the deployed capital. A 1.40× multiple is a bad deal if the capital sits idle.
It's an excellent deal if it funds inventory that generates a 2× gross margin.
Magic Valley food processors and distributors often have inventory turns that make even 1.40× multiples highly profitable. Model your specific use case before comparing cost multiples to bank loan APRs.
Building Your Capital Cost Comparison Model
Operators who make optimal financing decisions build a simple comparison model before evaluating any capital offer. This takes under five minutes and applies to any offer regardless of structure.
Step 1 — Total repayment cost: Advance amount × factor rate = total repayment. Example: $40,000 × 1.28 = $51,200; fees = $11,200.
Step 2 — Repayment duration: Total repayment ÷ (monthly revenue × holdback %) = months to repay. Example: $51,200 ÷ ($25,000 × 12%) = 17 months.
Step 3 — Effective APR: (Fees ÷ advance) ÷ (months ÷ 12). Example: ($11,200 ÷ $40,000) ÷ (17 ÷ 12) ≈ 20% APR.
Running this three-step model converts factor rates and revenue-percentage structures into a single comparable number. The operator who does this consistently pays less for capital over time than one who evaluates offers based on advance size or factor rate alone without accounting for repayment duration.
Common mistakes to avoid: comparing total fees across different advance sizes (compare rates, not absolute dollars); ignoring that faster repayment means higher effective APR on identical factor rates; and treating factor costs as equivalent to simple interest (factor fees do not decrease as the balance is repaid, unlike traditional interest).
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A cost multiple is the ratio of total repayment to the original advance amount. A $100K advance with a 1.3× multiple means you repay $130K total.
It's the simplest way to compare RBF offers because it collapses all fees and interest into a single number.
A factor rate and a cost multiple are the same thing expressed differently. A factor rate of 1.35 equals a cost multiple of 1.35× — you multiply the advance by the factor rate to get the total repayment amount.
Both mean you pay 35 cents for every dollar borrowed.
A cost multiple of 1.15× to 1.30× is generally competitive for established businesses with strong revenue. Multiples above 1.45× warrant careful evaluation of whether the capital use case generates sufficient return to justify the cost.
Use this formula: (total fees divided by advance amount) divided by (repayment months divided by 12) = approximate APR. A 1.28 factor rate repaid over 10 months converts to approximately 33% APR. A bank loan at 10% APR over 3 years is significantly cheaper for the same dollar amount, but requires 4-8 weeks to approve and often requires collateral.
Context determines this. A 1.25 factor rate repaid in 8 months (approximately 37% APR) is sound for a high-ROI deployment but expensive for long-term working capital. The test is whether your deployment returns more than the financing cost. If the capital generates 60% annualized return, a 37% effective APR advance is reasonable economics.
External Resource
SBA.gov Business Loan Programs — U.S. Small Business Administration — Loans
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Cost of Capital: RBF vs Alternatives
Total repayment as a factor multiple of principal — typical 12-month range.
Source: SBA lending data, RBF operator survey data 2026. Ranges are illustrative — actual terms vary by lender and operator profile.
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