1. The amount you actually receive
Not the amount on the offer. Origination fees, underwriting fees, packaging fees, and ACH set-up fees are frequently deducted from the wire, so a $100,000 facility can arrive as $96,500. You repay against the full amount and have use of the smaller one, and every subsequent calculation should use the smaller one.
Ask for the net wire amount in writing. If the answer is evasive, that is itself an answer.
2. The total you will repay
A single number: every payment, added up. Every legitimate financier can produce it in under a minute. It is the least manipulable figure in the entire negotiation, which is why it is so rarely volunteered.
Total repaid minus net received is the cost of the money. That is the number to compare across offers.
3. The unit the price is quoted in
An interest rate accrues on a declining balance. A factor rate is a fixed multiple. A discount fee is a percentage of an invoice face value per period. These are three different units and none is comparable to another without conversion.
If an offer quotes a factor rate, convert it before doing anything else. A 1.3 factor over six months is roughly 120% APR; the same 1.3 over eighteen months is roughly 35%. The factor alone tells you nothing.
4. The payment frequency
Monthly, weekly, and daily repayment of the same nominal amount are not the same product. Daily debits remove cash from the operating account before you can deploy it, and they raise the effective APR because the average balance you have use of is lower.
A daily-debit facility also behaves differently in a bad week: the debit does not pause because your revenue did.
5. What happens if you repay early
On a conventional loan, repaying early saves the unaccrued interest. On a merchant cash advance, it usually saves nothing at all - the total purchased amount is fixed regardless of timing. On an SBA loan with a term of fifteen years or more, there is a declining prepayment penalty for the first three years.
Get the answer in writing. 'You can pay it off any time' is true of almost everything and tells you nothing about whether doing so is cheaper.
6. What you are pledging, and who is on the hook
A personal guarantee makes business debt personal debt. A blanket UCC-1 lien on business assets can prevent you from financing anything else afterwards. A confession of judgment, where still enforceable, allows a funder to obtain judgment against you without a hearing.
These terms frequently matter more than two points of rate, and they almost never appear in the summary you are shown first.
Two questions that end most bad conversations
First: 'What is the total dollar amount I will repay, and what is the net amount that hits my account?' Second: 'Can you put the APR in writing?'
In several states - New York, California, Utah, Virginia among them - commercial financing providers below a threshold amount are legally required to give you standardised disclosures including an estimated APR before you sign. Where you are entitled to one, insist on it. Where you are not, ask anyway and note the response.
Questions
- Is a lender required to tell me the APR on a business loan?
- Federal Truth in Lending rules cover consumer credit, not commercial credit, so there is no blanket federal APR disclosure requirement for business loans. Several states have enacted their own commercial financing disclosure laws that do require it below a threshold. Outside those states, disclosure is a matter of asking.
- What is a reasonable origination fee?
- For SBA loans the guarantee fee is set by statute and varies by size and term. For conventional bank loans, 0.5% to 2% is common. On short-term and alternative products fees vary enormously, which is exactly why the net-wire figure matters more than the fee percentage.