How to Vet a Small Business Funding Offer

To vet a funding offer, check three things in writing before you sign: the total dollars you will repay, the fees and clauses that govern how you repay, and whether the funder itself is legitimate. A clean offer states the exact amount you receive, the total you repay, every fee, the payment amount and frequency, and the term — all on paper. When any of those is vague, missing, or explained only over the phone, treat it as a warning sign, not a detail to sort out after funding.

Most owners compare offers by whichever number sounds smallest — a "1.30 factor" or a "low" weekly payment — and that is exactly how the more expensive deal wins. Vetting fixes that: you convert every offer to the same measures so you can compare them honestly, then confirm the paper matches what the salesperson told you. The steps below take about an hour and work whether you are looking at a term loan, a line of credit, or a merchant cash advance.

Start With Total Dollars, Not the Rate

The single most useful question you can ask is: How many dollars will I repay in total, and how many of those are on top of what I receive? Every legitimate funder can answer that with one number. If the reply is a rate, a percentage, or "it depends," keep pressing until you have dollars in hand.

Financing is quoted in different languages on purpose. Term loans and lines of credit use APR (annual percentage rate), which folds interest and most fees into one annualized figure. Merchant cash advances and many short-term products use a factor rate — a flat multiplier like 1.25 or 1.40 with no time value built in. A 1.30 factor on $50,000 means you repay $65,000 whether it takes six months or eleven. Because the factor ignores time, a 1.30 repaid in 6 months is far costlier than the same 1.30 repaid over 18 months, even though the sticker is identical.

The table below shows how one headline can hide very different costs. Figures are rounded and shown for example only.

Offers A and B cost the same dollars, but A pulls that cash out of your account in half the time — a much heavier weekly bite on the same total. Offer C costs the fewest total dollars and spreads them furthest. None of that is visible if you only compare "1.30" against "28%."

Convert Every Offer to the Same Terms

You cannot compare a weekly payment, a monthly APR, and a factor rate in your head. Do the arithmetic once, on paper, for each offer, using four fields you can pull straight off any term sheet: amount funded, total repaid, payment amount, and payment frequency. Everything else derives from those.

• Cents on the dollar — total cost divided by amount funded — is the plainest measure. Paying $15,000 to receive $50,000 is 30 cents on the dollar; use it to rank offers in one glance.
• Estimated APR puts short-term and long-term products on one scale. A short-term factor rate almost always translates to a higher APR than owners expect — a 1.25 factor repaid over 6 months, for example, can land well above 70% APR once time is accounted for.
• Payment as a share of revenue. Divide the periodic payment by your revenue for that same period. A deal can be affordable on the spreadsheet and still choke cash flow if each draft claims too large a slice of deposits.

Watch the payment frequency closely. Daily and weekly ACH drafts are standard in short-term financing and are not automatically bad, but they compress repayment into a narrow window. A "low" $1,200 weekly payment is roughly $5,200 a month — run that against your slowest recent weeks, not your best month, before you decide it is small.

Read Every Fee Before It Reads You

The headline cost is rarely the whole cost. Fees are either deducted from the amount you receive — so you get less than the number on the offer — or added to what you repay. Both raise your effective rate, and both belong in the written agreement before you sign, never in a verbal aside.

The prepayment question matters most on factor-rate products. With a true amortizing loan, paying early saves interest. With many cash advances the full fixed cost is baked into the factor, so early payoff saves little or nothing. Ask it plainly: If I repay in 60 days, what is my exact total payoff? Get the number in writing.

Question the Clauses That Control You After You Sign

Cost tells you what the money is worth. The contract tells you what the funder can do to you. A handful of clauses deserve a slow read — and a lawyer's eyes when the amount is material to your business.

• Personal guarantee. Most small-business financing requires one. Know exactly what you are personally liable for if the business cannot pay.
• Confession of judgment (COJ). This lets a funder obtain a court judgment against you without a hearing after a default. It has been restricted in some jurisdictions; read for it and understand it regardless.
• Reconciliation. On revenue-based products, a genuine reconciliation clause lowers your payment when sales drop. Confirm it exists, how you request it, and how quickly it is honored.
• Stacking and default triggers. Many agreements bar additional financing or treat it as automatic default. Understand the limits before you consider a second position.
• Assignment and UCC filings. A UCC-1 filing is routine, but know what collateral it covers and whether the funder can sell or assign your contract to a party you never chose.

If a salesperson tells you a clause "never gets used" or "don't worry about that part," that is precisely the clause to read twice.

Verify the Funder Is Real and Reputable

Plenty of predatory offers arrive looking polished, then vanish after collecting a fee. Vet the company as carefully as its terms.

• Confirm the entity exists. Look up the legal name, its state registration, and how long it has operated. A real address and a traceable history matter.
• Check independent reviews and complaints, including the Better Business Bureau and state regulators. Look for patterns — surprise fees, drafts that don't stop, unreachable support — not a single stray gripe.
• Never pay an upfront fee to "release" or "guarantee" funding. Legitimate funders deduct costs from the advance or bill them in the agreement; none ask you to wire money first to unlock an approval.
• Know who is quoting you. A broker or marketplace connects you to funders and may add a fee; a direct funder uses its own capital. Neither is wrong, but you should know which one you're dealing with and how they are paid.
• Match the paper to the pitch. Read the final contract line by line against what you were told. If the numbers or terms shifted between the call and the document, stop.

No honest funder promises you are "guaranteed" to be approved before reviewing your business. Approval and terms depend on your revenue, time in business, and credit — a legitimate offer follows underwriting, it does not precede it.

Know Where You Realistically Stand

Vetting works better when you know the baseline the market actually offers, so you can tell a fair deal from a desperate one. Common entry points look roughly like the figures below; your own results depend on your numbers.

Speed is a genuine benefit, but it is also the lever used to rush you past the fine print. An offer that can fund in a day can also wait a day while you read it. If a funder won't give you time to review the contract, that refusal is itself information.

One product owners often misread is MCA relief, sometimes called reverse consolidation. It works by lowering your daily or weekly payment to ease cash-flow pressure — it does not pay off, buy out, or eliminate your existing advances, which remain in place. If anyone describes a relief product as "paying off" your balances, they are describing something else entirely; ask for the exact mechanics and the resulting payment schedule in writing.