A buy rate is the base cost a funder or lender assigns to a financing offer before a broker adds any markup. It represents the wholesale price of the money: the number the funder itself is willing to accept. In many small-business financing deals, especially merchant cash advances and some working-capital products, an independent broker sits between you and the funder. The buy rate is what the broker is quoted; the rate you actually see may be higher, because the broker can add a margin on top.
Understanding the buy rate helps you see where your cost of capital comes from and where there may be room to ask questions. The difference between the buy rate and the rate you are offered is how many brokers earn part of their compensation on a deal.
Key takeaways
- A buy rate is the base price a funder sets on a deal before any broker markup is added.
- In merchant cash advances, the buy rate is usually shown as a factor, such as 1.30, not a percentage.
- The difference between the buy rate and your offered rate is often how a broker earns compensation.
- Working with a direct funder means there is no third-party markup, so the quoted rate is the buy rate.
- MCA relief lowers the daily or weekly payment amount and does not change the original buy rate or erase the balance.
How it works
In a typical brokered deal, a funder reviews your business and sets a buy rate based on its own risk assessment, your time in business, revenue, and credit profile. The broker receives that buy rate and then decides what to present to you. If the broker adds a margin, your offered rate (sometimes called the sell rate or street rate) sits above the buy rate. The gap between the two is often paid to the broker as commission or points.
For a merchant cash advance, the buy rate is usually expressed as a factor, such as 1.30. That factor multiplied by the amount funded gives the total you repay. A higher factor means a higher total cost. Because the funder sets the buy rate and the broker sets the markup, two businesses with identical funder-side terms can end up with different final costs depending on who arranged the deal.
A quick example with round numbers
Suppose a business is approved for a $50,000 advance. The funder issues a buy rate factor of 1.30, meaning the funder is willing to be repaid $65,000 in total. The broker chooses to present a factor of 1.40 to the business, so the offered payback is $70,000.
| Item | Amount |
|---|---|
| Amount funded | $50,000 |
| Buy rate factor (funder) | 1.30 |
| Funder payback | $65,000 |
| Offered factor (with markup) | 1.40 |
| Your payback | $70,000 |
| Broker markup | $5,000 |
In this example, the $5,000 difference between the funder payback and your payback reflects the broker's markup. The numbers are illustrative and rounded for clarity; real offers vary by funder, product, and business profile.
Why it matters to a business owner
Knowing that a buy rate exists changes how you read an offer. The rate on your term sheet is not always the funder's floor; part of it may be markup. That does not make an offer unfair, since brokers provide real work in matching and packaging deals, but it does mean the number can sometimes be discussed.
When you compare offers, ask whether you are working with a direct funder or a broker, and how the pricing is built. A transparent broker can explain how the rate was set. If you are already carrying an advance and the payments are straining cash flow, know that MCA relief options work by lowering the daily or weekly payment amount, not by erasing the balance you owe. Most funders in this space look for at least $10,000 in funding need and a FICO score of 500 or higher, and no legitimate offer is ever guaranteed before underwriting.
Related terms
- Factor rate: A multiplier, such as 1.30, used to calculate total payback on an advance instead of a percentage interest rate.
- Sell rate (street rate): The rate actually presented to the business, equal to the buy rate plus any broker markup.
- Points: A form of broker compensation, often tied to the spread between the buy rate and the sell rate.
- Merchant cash advance (MCA): A financing product where a business receives a lump sum and repays through a fixed daily or weekly amount.
- Direct funder: A company that supplies its own capital, so its quoted rate is the buy rate with no third-party markup.
Frequently asked questions
Is the buy rate the same as the rate I pay?
Not always. The buy rate is the funder's base price. If a broker arranged your deal and added a markup, the rate you pay can be higher than the buy rate. When you work directly with a funder, the two are usually the same.
Can I ask a broker for the buy rate?
You can ask how the pricing was built and whether there is a markup. Not every broker discloses the exact buy rate, but a transparent one should be able to explain how your offered rate was set and what services the margin covers.
Is a buy rate an interest rate?
In many small-business advance products, the buy rate is expressed as a factor, such as 1.30, rather than an annual interest rate. You multiply the factor by the amount funded to get the total payback, so it works differently from a percentage rate.
Does a lower buy rate always mean a better deal?
A lower buy rate generally means a lower funder-side cost, but the final cost also depends on any broker markup, fees, term length, and payment frequency. Compare the total payback and the payment schedule, not the buy rate alone.
How does the buy rate relate to MCA relief?
MCA relief focuses on your repayment burden rather than the original buy rate. It works by lowering the daily or weekly payment amount to ease cash flow. It does not change the buy rate on your existing advance or eliminate the balance you owe.
