Guide
How to compare business funding offers
Two funding offers can advertise the same dollar amount and cost very different things. This guide explains what actually determines the cost of small-business funding — total payback, APR versus factor rate, repayment schedule, fees, and guarantees — so you can compare offers on the same footing, whether they come from a bank, an online lender, or a marketplace like LoanRival.
This guide is general information, not financial, legal, or tax advice. The examples below are hypothetical illustrations of how the math works, not rates or terms offered by LoanRival or any funder. Consult your own advisors before making financing decisions for your business.
1. Start with total payback, not the headline amount
The single most useful number on any offer is total payback: everything you will send back over the life of the funding, including principal, interest or fees, and any origination or servicing charges. Subtract the amount you actually receive (after any fees deducted up front) and you have the total cost of capital in dollars.
Comparing dollars first keeps you honest. A "$100,000 approval" that nets you $96,000 after fees and requires $128,000 back is a $32,000 cost, regardless of how the rate is expressed.
2. APR vs. factor rate: why they aren't interchangeable
Traditional loans and lines of credit are usually priced with an interest rate and disclosed as an APR (annual percentage rate). APR annualizes the cost, including certain fees, so a 12-month loan and a 36-month loan can be compared on the same scale.
Revenue-based funding and merchant cash advances are usually priced with a factor rate — a multiplier applied to the advance. A 1.25 factor on a $50,000 advance means $62,500 total payback. The factor rate is fixed at the start; it does not compound or shrink if you repay faster.
The trap is that a factor rate looks like a low interest rate but isn't one. Because factor-rate products are typically repaid over months rather than years, the equivalent APR can be far higher than the factor rate suggests. Hypothetically, $12,500 of cost on $50,000 repaid over six months represents a much higher annualized rate than the same $12,500 spread over three years. When you compare a factor-rate offer to an APR-priced offer, convert both to total dollars over the actual repayment period, and ask the funder for the estimated APR or annualized cost.
3. Repayment schedule and cash-flow fit
How you repay matters as much as how much. Ask each funder:
- Frequency: daily, weekly, or monthly payments? Daily and weekly remittances are common with revenue-based products and can strain a business with lumpy cash flow.
- Fixed or variable: a fixed payment is predictable; a payment set as a percentage of sales flexes with slow periods but can extend the payback period.
- Term: the shorter the term, the larger each payment. Model the payment against your actual monthly cash flow, not your best month.
4. Fees that change the real cost
Read the offer for origination or underwriting fees (often deducted from the amount you receive), ACH or wire fees, late or returned-payment fees, and any renewal or "stacking" provisions. Fees deducted up front reduce the money you actually get while leaving your payback unchanged, which raises the effective cost.
5. Early payoff: is there a discount?
With a standard loan, paying early usually reduces total interest. With a factor-rate advance, the payback amount is typically fixed — paying early does not automatically save money unless the contract includes an early-payoff discount. If you expect to repay ahead of schedule, ask explicitly whether a prepayment discount exists and how it is calculated.
6. Guarantees, collateral, and liens
Understand what you are personally putting behind the funding. Common items to look for: a personal guarantee by the owner, collateral or a blanket lien on business assets (often filed as a UCC-1), and, in some contracts, provisions that let the funder act quickly on default. These are not necessarily deal-breakers, but they should be understood, and the rules governing some of them vary by state.
7. Existing balances and stacking risk
If you already have an advance or loan outstanding, adding another on top ("stacking") multiplies daily obligations and can breach the terms of the first agreement. Disclose existing balances to any funder up front; a responsible offer takes your current obligations into account rather than ignoring them.
8. Speed is a feature with a price
Fast decisions (in some cases 24–48 hours) are possible with complete documentation — usually recent business bank statements and basic business and owner information. Speed is genuinely valuable when an opportunity or shortfall won't wait, but it is not free: the fastest products are often the shortest-term and, in annualized terms, the most expensive. Decide how much speed is actually worth to you.
9. The main types of business funding, briefly
- Term loans / term funding — a fixed amount, repaid on a schedule over a set period; suited to planned investments.
- Business lines of credit — a limit you draw against as needed, paying only on what you use; suited to cash-flow gaps.
- Revenue-based funding / merchant cash advances — an advance repaid from a share of future revenue, priced with a factor rate; the most common fast option.
- SBA-guaranteed loans — bank loans partially guaranteed by the U.S. Small Business Administration; generally lower cost but slower and more document-heavy.
- Equipment financing — funding secured by the equipment being purchased.
10. Questions to ask any funder before you sign
- What is the total payback, and how much will I actually receive after fees?
- Is the cost expressed as an interest rate/APR or a factor rate? What is the estimated annualized cost?
- What is the payment frequency and amount, and is it fixed or a percentage of sales?
- What is the term, and what happens if a payment is missed?
- Is there an early-payoff discount?
- Is a personal guarantee, collateral, or UCC lien required?
- Who is the actual funder on this offer?
- Will a hard credit inquiry be run, and when?
How LoanRival fits in
LoanRival is a business-funding marketplace. You submit one request, multiple funders in our network compete with offers, and a funding specialist lays out the amounts, total payback, and terms side by side and answers the questions above for each offer. Funders in the network offer revenue-based funding, term funding, and lines of credit. The service is free to business owners; LoanRival is compensated by funders in its network when a deal closes. LoanRival funds certain transactions directly and arranges others through third-party funders, and every offer identifies who is making it. No approval, amount, rate, or timeline is guaranteed, and you are never obligated to accept an offer.