The amount: funded, financed and deposited
Offers use three amounts that are easy to confuse. The funded or purchase amount is the headline figure the provider approves. The financed amount is what the contract treats as the principal. The deposited amount is what actually reaches your account after origination fees, prior-balance payoffs and holdbacks. On a $100,000 approval with a 3 percent origination fee and a $12,000 payoff of an existing advance, the deposit is $85,000.
Ask for the net deposit in writing. It is the base for every cost calculation and it is the amount that has to solve your problem. If the equipment quote is $90,000 and the deposit is $85,000, the offer does not do the job.
For invoice factoring, the equivalent is the advance rate: the percentage of each invoice paid up front, typically 80 to 95 percent, with the remainder minus fees released when the customer pays.
The cost: total payback, rate labels and fees
Every offer states its cost in the language of its product. Term loans and lines of credit quote an interest rate or APR. Merchant cash advances and many working-capital products quote a factor rate. Factoring quotes a discount fee per 30 days. Equipment leases quote a monthly payment and a residual. The only way to compare them is to convert each to total payback: the sum of all payments and fees over the life of the agreement.
Several states now require this conversion on the offer itself. In California and New York, providers of most commercial financing must disclose the total dollar cost, an annualised rate, the payment amount and frequency, and prepayment terms in a standard format. If you are in one of those states and the disclosure is missing, that is a warning sign in itself.
The fee schedule is where offers differ most. Look for an origination or underwriting fee, monthly maintenance or platform fees, draw fees on a line of credit, wire fees, late and NSF fees, a renewal fee, and for factoring, minimum-volume and termination fees. Add the ones you will realistically incur to the total payback before comparing.
| Product | How the cost is labelled | Convert it by |
|---|---|---|
| Term loan | Interest rate or APR, plus origination fee | Sum of scheduled payments plus fees |
| Line of credit | Interest on drawn balance, draw and maintenance fees | Model your expected draws; add all fees |
| Merchant cash advance | Factor rate (e.g. 1.30) and fees | Advance × factor, plus fees; then annualise against the term |
| Revenue-based financing | Payback multiple and revenue share | Amount × multiple; timing depends on sales |
| Invoice factoring | Discount fee per 30 days, plus service fees | Fee × expected days outstanding, per invoice |
| Equipment financing / lease | Rate or monthly payment, residual or buyout | All payments plus buyout, less any tax benefit |
| SBA loan | Variable or fixed rate, guarantee fee, packaging fee | Amortisation total plus fees |
The payment schedule
The payment schedule decides whether an offer fits your cash flow, and it is where most defaults begin. Check four things: the amount, the frequency, the collection method and whether the payment is fixed or variable. A $65,000 payback collected as a fixed $344 ACH every business day is a different obligation from the same $65,000 collected as 12 percent of daily card receipts, even though the total is identical. The first fails in a slow week; the second stretches.
For daily and weekly debits, confirm the exact days, the account they draw from, what happens on bank holidays, and the process for pausing or adjusting if sales fall. Reputable providers have a reconciliation clause that lets a merchant cash advance holder adjust the remittance to match actual receipts; ask for it and read it.
For monthly term products, confirm the first payment date, whether interest accrues from funding or from the first period, and whether payments are level or interest-only for an initial period. For lines of credit, confirm the draw period, the minimum payment on the drawn balance and whether the line can be reduced or frozen by the lender.
Prepayment, renewal and early payoff
Ask directly: what happens if I pay this off early? A term loan with simple interest saves you the remaining interest, unless it carries a prepayment penalty, which is common in the first year of longer loans. A factor-rate product owes the full payback regardless, unless the contract includes a prepayment discount, often a reduced factor within the first 30 to 90 days. Equipment leases may charge the remaining payments plus the buyout.
Renewal terms cut the other way. Some products offer a renewal or top-up once a portion, often 50 to 60 percent, of the balance is repaid. It is convenient and it is expensive: the new advance is priced on the full amount while part of it pays off the old balance, so you pay a factor on money you never received. Read the renewal clause and calculate the true cost before accepting one.
Also confirm the payoff process: whether you can request a payoff letter, how many days it is valid, and whether a payoff releases any UCC lien and personal guarantee promptly.
Guarantees, liens and legal terms
Almost every small-business funding agreement includes a personal guarantee from the owners, usually anyone with 20 percent or more ownership. It means that if the business cannot pay, you personally can be pursued. That is normal and not a reason to walk away, but you should know its scope: whether it is unlimited, whether it covers fees and legal costs, and whether it survives a sale of the business.
A UCC-1 financing statement is also standard. It is a public filing that gives the funder a claim on business assets. Check whether it is a blanket lien on all assets or limited to specific collateral, and whether the contract prohibits you from taking other financing while it is in place. That clause is what makes stacking a breach of contract.
Terms to treat as red flags: a confession of judgment, which lets the funder obtain a court judgment against you without a hearing and is now banned or restricted in several states; automatic renewal without consent; a clause allowing the funder to change the remittance unilaterally; and vague default triggers such as any change in the business the funder considers adverse. Ask for these to be removed or explained in writing.
Ask these in writing
Questions to ask before you sign
- What exact amount will be deposited, and on what date?
- What is the total I will repay if everything goes as scheduled?
- What is the payment amount, frequency, method and account?
- Is the payment fixed or a percentage of receipts, and can it be reconciled if sales drop?
- What are all fees, including monthly, late, NSF, wire and renewal fees?
- What happens if I pay early: discount, penalty or nothing?
- What does the personal guarantee cover, and is there a confession of judgment?
- Is the UCC lien blanket or specific, and does it block other financing?
- Who is the actual funder, and is this offer subject to further underwriting?
- Which state’s law governs the contract, and where would disputes be heard?
Putting two offers side by side
Once you have the net deposit, total payback, payment amount and frequency for each offer, the comparison is straightforward. Divide total payback by net deposit for a cost multiple. Convert the payment to a monthly figure, 21 business days for daily debits, 4.33 weeks for weekly, and check it against your monthly free cash flow after existing debt. Then weigh speed and flexibility: a line of credit you do not draw costs almost nothing; an advance you take today is fully committed.
Two offers on a $60,000 need: an advance depositing $58,200 with $78,000 payback over 8 months at $464 a day, and a 24-month term loan depositing $58,800 with $74,400 payback at $3,100 a month. Cost multiples are 1.34 and 1.27. Monthly payments are about $9,700 and $3,100. Unless the money is needed this week, the term loan wins on every measure. If it is needed this week and the use earns more than $20,000 in the next two months, the advance can still be the right call.
The estimator below runs any amount through the published market ranges so you can see roughly where an offer sits before you negotiate.