Two business funding offers land in your inbox. One quotes "8% interest." The other quotes a "factor rate of 1.25." Which one fits your business?
If you're not sure, you're not alone. Different funding products use different pricing conventions because they're structured differently. Once you know what to look for, comparing offers becomes straightforward.
Here's how to read any offer in plain English.
The four numbers you actually need to know
For any business funding offer, find these four numbers. Together, they tell you everything you need.
- Total payback amount (the dollars you pay back, including all fees and interest)
- Term length (how long you have to pay it off)
- Annual Percentage Rate (APR) (the standardized cost of borrowing, expressed as a yearly rate)
- Origination or closing fees (what gets deducted from your funding before it lands in your account)
Get those four numbers, and you can compare any offer to any other offer.
Interest rate vs. factor rate vs. APR
Different products use different pricing conventions. Here's what each one means.
Interest rate
The annual percentage of the outstanding balance you pay in interest. A $100,000 loan at 10% interest costs $10,000 a year if the balance never goes down. Used for term loans, lines of credit, and SBA loans.
Factor rate
A multiplier (usually between 1.10 and 1.50) applied to the principal to give you the total payback. A $100,000 advance at a 1.30 factor rate means you pay back $130,000. Used for merchant cash advances and short-term working capital products.
Factor-rate products are built for speed and simplicity. The total payback is fixed up front, there's no compounding to track, and remittance happens daily or weekly so the balance retires steadily. For a business funding a time-sensitive opportunity or one with strong revenue but a thin credit profile, that structure is often the right call.
APR (Annual Percentage Rate)
The standardized, all-in annual cost of borrowing, including interest, fees, and the term length. APR is useful when you want to compare two products with very different structures, like a 12-month working capital advance and a 5-year term loan.
Two offers, side by side
Same business owner. Two offers. Both are for "$100,000."
| Offer A: Term Loan | Offer B: MCA | |
|---|---|---|
| Funded amount | $100,000 | $100,000 |
| Quoted price | 14% interest | 1.28 factor rate |
| Term | 36 months | 9 months |
| Origination fee | 2% ($2,000) | 5% ($5,000) |
| You actually receive | $98,000 | $95,000 |
| Total payback | ~$123,000 | $128,000 |
The two offers look similar at first glance, but they're structured for different jobs. Offer A is a longer-term, fully amortizing loan, well-suited for predictable, planned investments where the steady three-year schedule fits your cash flow. Offer B is a faster-payback advance designed to deploy quickly, which is often the right call when a time-sensitive opportunity is on the table or when monthly revenue is strong.
Each fits a different situation. The right call depends on how fast you need the capital, how predictable your cash flow is, and how the funding ties to a specific use of the money. A good funding advisor will walk you through the trade-offs so you can pick the structure that suits your business.
Other terms to understand
Beyond the headline rate, here are line items that show up across many funding products. Knowing what they are helps you ask the right questions.
- Origination fees typically range from 1 to 5 percent of the funded amount and are deducted before the money lands in your account. Always confirm the net amount you'll receive.
- Draw fees apply to some lines of credit, usually 1 to 3 percent per draw. Worth confirming if you plan to draw frequently.
- Maintenance fees are flat monthly charges that appear on some revolving products. Easy to overlook in the offer letter, so check.
- Prepayment terms vary by product. Some loans allow early payoff with full or partial interest savings. Other products have a fixed total payback regardless of when you finish. Each structure has its place.
- UCC filings are standard on most business funding. They help the lender secure the financing and are routine industry practice.
What a clear offer looks like
A well-presented funding offer should let you understand what you're signing in just a few minutes. Specifically, look for:
- The exact dollar amount being funded into your account (after fees)
- The total dollar amount you'll repay
- The full payment schedule (frequency, amount, total number of payments)
- All fees and any prepayment terms
- Any collateral or personal guarantee being requested
If anything is unclear, ask. A reputable lender will walk you through every line.
Want help comparing offers?
Send us what you have and we'll walk through the trade-offs with you, no obligation.
The bottom line
The right funding product is the one that fits your business: your timeline, your cash flow, and how you plan to put the capital to work. A fast, simple advance can be exactly the right tool when speed matters most. A longer-term loan can be exactly right when you have a clear plan to deploy capital over time. Both are legitimate, useful structures, and the best advisors help you pick between them based on what your situation actually needs.
Every offer Creative Capital Group provides is presented in plain English, with the numbers above clearly stated in writing, before you sign anything. That's how funding should work.