How to Read a Business Funding Offer

A funding offer is more than an interest rate. It is a contract that defines the cost, the repayment structure, your obligations, and what happens if things go wrong. Reading it carefully — and understanding what each term means — is one of the most important steps before accepting any funding.

The Key Terms to Understand

APR vs Factor Rate

The APR (annual percentage rate) reflects the annualized cost of borrowing, including interest and most fees. A factor rate is a multiplier — a 1.35 factor rate on a $25,000 advance means total repayment of $33,750. Factor rates are common in MCA and short-term products; they do not amortize like a loan. (See factor rates vs. APR.)

The critical mistake is comparing a factor rate to an APR directly. A 1.35 factor rate over 6 months is not "35% per year" — the annualized cost is significantly higher because the repayment period is shorter.

Repayment Structure

Is the repayment daily, weekly, or monthly? Fixed amount or percentage of revenue? How many payments total? (See repayment structures compared.) The structure determines how the funding affects your daily cash flow.

Total Cost of Capital

This is the total amount you will repay minus the amount you receive. If you receive $25,000 and repay $33,750, the total cost is $8,750. This is the number that matters most — not the monthly payment, not the rate, but the total dollars leaving your business.

Prepayment Terms

Can you repay early? Is there a discount for early repayment? Some MCA contracts require full repayment regardless of how early you pay — there is no interest savings for prepayment. (See prepayment questions.) This is a critical distinction from a traditional loan, where early repayment reduces total interest.

Personal Guarantee

Does the offer require a personal guarantee? If so, you are personally liable for repayment if the business cannot pay. (See business vs. personal credit.) Understand what this means before signing.

Default Triggers

What constitutes a default? Common triggers include missed payments, changing bank accounts, or taking on additional funding without consent. (See MCA stacking.) Understand what actions could trigger a default declaration.

Questions to Ask Before Accepting

• What is the total amount I will repay?
• What is the APR equivalent, not just the factor rate?
• How many payments, and on what schedule?
• Is there a prepayment discount or penalty?
• What triggers a default?
• Is there a personal guarantee?
• Are there origination fees, closing fees, or other costs?
• What happens if a payment bounces?

Red Flags

• Pressure to sign quickly without time to review — a legitimate funder gives you time to read the contract.
• Vague or missing terms — if the repayment structure is not clearly defined, ask for clarification in writing.
• A factor rate presented as if it were an APR — this is a common misrepresentation.
• Daily repayment that exceeds 15% of your average daily revenue.

The Strategic View

Reading a term sheet carefully is not about being suspicious — it is about being informed. The best funding decisions are made by owners who understand exactly what they are agreeing to, how it affects their cash flow, and how it fits into their broader financial strategy. (See how it works for the overall process.)