To compare business loan offers, turn every offer into the same five figures: the money you receive after fees, the total you pay back, the cost in dollars (total payback minus the money you receive), the payment and how often it comes out, and the term. Offers quote their price in different ways, so a factor rate, an interest rate and a fee on each draw can't be lined up as they are. Once each offer is written as those five figures, you can compare business loans of different types on one page, check that the payment fits your deposits, and weigh the cost against how fast the money arrives and what it will earn.
The 5 figures that make offers comparable
Every offer letter, term sheet or disclosure form contains these numbers, sometimes under different labels. Write them down in the same order for each offer.
- Money you receive after fees is the amount that actually reaches your account once any fee taken at funding is subtracted.
- Total payback is every dollar you will pay over the life of the offer, counting all payments plus any fees added to the balance.
- Cost in dollars is total payback minus the money you receive, which is the one figure that works for every type of offer.
- Payment and frequency is the amount that leaves your account each time and whether it comes out daily, weekly or monthly.
- Term is how long the payments run, in weeks, months or years.
A fee withheld at funding lowers the money you receive, and a fee added to the balance raises the total payback. Either way, the cost in dollars catches it.
How each type of offer quotes its cost
A Federal Reserve study of online lender websites found that lenders offering term loans were likely to show cost as an annual rate, while others used terms that may be unfamiliar to borrowers, and some showed no cost information at all.
Revenue-based financing quotes a factor rate
Revenue-based financing, also called a merchant cash advance, is a purchase of part of your future sales. The funder advances a lump sum sized on your usual revenue, and you repay a fixed larger amount through a set daily or weekly payment. The price is a factor rate, a multiplier on the amount advanced. An advance of $100,000 at a factor rate of 1.30 means a total payback of $130,000, so the cost before any listed fees is $30,000. Our guide to how factor rates work and what they cost in dollars has the full math.
Term loans and SBA-equivalent loans quote an interest rate
A term loan pays out a lump sum and is repaid in equal monthly payments that include interest on the balance still owed. The price is an annual interest rate, often with an origination fee taken at closing. The rate alone does not give you the cost in dollars, because the total interest depends on the term. Our explainer on how business term loans work and what they cost shows the payment at several terms. SBA-equivalent loans, which we offer through partners, are priced the same way, with the partner setting the rate and term.
Lines of credit quote a fee on each draw or a rate on the drawn balance
A line of credit gives you a limit to draw against as needed, and you pay only on what you draw. Some lines charge a fee on each draw and spread the repayment over a set number of weeks. Others charge a rate on the balance you have drawn. Either way, the cost depends on how much you draw and when. Our comparison of a line of credit and a term loan covers how each is drawn and repaid.
For revenue-based financing, lines of credit and consolidation offers, compare in dollars. The total payback and the cost in dollars are what you actually pay, and they let you set any two offers side by side without converting one price into another.
State disclosure forms do part of the work
Some states, including New York, California and Virginia, require funders to put commercial financing offers on a standard disclosure form built to make offers comparable. If your business is in one of them, ask for the disclosure with every offer and read it first.
- New York's Commercial Finance Disclosure Law requires certain providers of commercial financing of up to $2,500,000 to give standardized disclosures when an offer is made. The Department of Financial Services adopted the regulation in 2023 so businesses can understand and compare the terms of different offers. The form set out in the regulation has rows for the funding provided, the finance charge, the total payment amount, the payment, the payment terms, the term and prepayment, and for a renewal it asks whether the new financing pays unpaid charges from the old one.
- California's SB 1235 requires providers to disclose the total amount of funds provided, the total dollar cost of the financing, the term or estimated term, the method, frequency and amount of payments, and a description of any prepayment penalty. The Department of Financial Protection and Innovation's regulations took effect on December 9, 2022.
- Virginia's law on sales-based financing requires disclosure of the amount after any fees withheld at funding, the finance charge, the total repayment amount, the estimated number of payments, the payment amount, frequency and method, and other fees such as prepayment fees.
Those lists line up closely with the five figures above. Where no disclosure is required, ask each funder or lender for the same numbers in writing.
Compare business loan offers with a worked example
Here are three example offers for the same need of $100,000. The figures are examples to show the arithmetic, not quotes.
- Offer A is revenue-based financing of $100,000 at a factor rate of 1.30 over about 9 months, with an example fee of $2,000 taken from the funding and 39 set weekly payments.
- Offer B is a $100,000 line of credit drawn in three parts: $40,000 in week 1, $30,000 in week 9 and $30,000 in week 17. Each draw carries an example fee of 8% added to the repayment and is repaid in equal weekly payments over 24 weeks.
- Offer C is a 3-year term loan of $100,000 at an example rate of 10%, with a 2% origination fee taken at closing and 36 equal monthly payments.
| Example figure | A: Advance at 1.30 | B: Line drawn over time | C: 3-year term loan |
|---|---|---|---|
| Money you receive after fees | $98,000 at once | $100,000 over 16 weeks | $98,000 at once |
| Total payback | $130,000 | $108,000 | $116,162 |
| Cost in dollars | $32,000 | $8,000 | $18,162 |
| Payment and frequency | $3,333 a week | $1,350 to $4,500 a week | $3,227 a month (about $745 a week) |
| Term | About 9 months (39 weeks) | About 9 months (last payment in week 40) | 3 years (36 months) |
| Typical time to funding | One to two business days | Offers often within a day | Weeks |
The line's weekly payment is $1,800 for the first eight weeks, $3,150 from week 9, and $4,500 in weeks 17 to 24 while all three draws are being repaid, before it steps back down. The term loan's payment is the lowest per week because it is spread over three years, and the advance keeps one set payment from start to finish.
Offer A costs $32,000 for money that arrives within a day or two. Offer C costs $18,162 for money that takes weeks and needs three years of payments. Offer B costs the least if the business qualifies for a line that size, and if only $60,000 is drawn, the fees apply only to that $60,000.
Check each payment against your deposits
A lower cost doesn't help if the payment drains the account in a slow week. Before you choose, set each payment against your weekly deposits from your last four months of bank statements, and look at the slowest week rather than the average one. In the example above, a business with $25,000 in a slow week would be paying out about 13% of it to Offer A, about 3% to Offer C, and up to 18% to Offer B during the weeks when all three draws overlap.
Frequency matters too. A daily payment comes out about five times a week in smaller amounts, and a weekly payment comes out once in a larger amount. Neither is cheaper on its own, so pick the one that matches the days your deposits arrive.
Contract terms that change an offer beyond the numbers
Two offers with the same five figures can still differ in what happens if you pay early, what you put up, and what you agree to keep doing.
Prepayment
On a term loan, paying early usually saves the interest that hasn't built up yet, unless the contract adds a prepayment penalty. On a merchant cash advance the total payback is fixed when you sign, so paying early saves money only if the contract offers an early payoff discount. Some lines of credit discount early payoff as well. Ask each provider what you would owe if you paid off halfway through. Our guide to merchant cash advance early payoff and prepayment discounts covers how those discounts are written.
Collateral and UCC filings
Revenue-based financing usually needs no collateral beyond the future sales being purchased, and the funder typically files a UCC-1 financing statement to record its interest in those receivables. A term loan may take a specific asset or a blanket lien on business assets, and a commercial equity loan is secured by commercial real estate the owner holds. Ask what each filing covers and when it will be terminated after payoff. Our explainer on what a UCC lien is and how it is released goes through the filing itself.
Personal guarantee
Many offers ask the owner for a personal guarantee. Read what it covers, for example whether it covers repayment of the whole balance or the business keeping its promises under the contract, such as not changing bank accounts or moving deposits. If two offers are close on cost, the narrower guarantee can be worth more than a small price difference.
Renewal and stacking clauses
A renewal pays off what you still owe and sends you the difference, so the money you receive is the new amount minus the old balance. Check whether the old balance includes fees you haven't yet earned your way through, since the New York form asks that question directly. Also check whether the contract limits other financing against the same sales while it is open, which matters if you expect to need more money before this one is repaid.
Weigh cost against speed and what the money earns
The lowest cost in dollars is the right choice only if that money arrives in time and you qualify for it. A cost is worth paying when the money earns more than it costs and the payment fits.
Here is an example. A contractor needs $100,000 within ten days to buy materials and staff a job worth $260,000 that should leave about $70,000 of profit. A term loan that takes several weeks would miss the start date, so its lower cost doesn't apply. If the business qualifies for a $100,000 line in time and draws it all at once, a line priced like Offer B costs $8,000 in draw fees and leaves about $62,000 of the profit. If the line is smaller or not available, Offer A costs $32,000, arrives within one to two business days, and leaves about $38,000 of profit from a job the business would otherwise have turned down.
For any use, write down what the money should bring in, when, and what happens if you wait. A term loan fits a purchase that pays off over years, such as equipment or a second location. A line fits costs that come and go. Revenue-based financing fits an urgent need sized on your revenue.
How we lay your offers side by side
We are a business funding broker, so one application goes to the funders and lenders in our network and the offers come back to us. We put each one into the same five figures, add the payment against your slowest recent week, and list the prepayment, collateral, guarantee and renewal terms next to them. We go through the page with you before anything is signed. Our guide to how a business loan broker compares with a direct lender covers the differences if you are weighing both.
The application is a short form plus four months of business bank statements, and there is nothing to pay to apply or to see offers. The funders we work with generally look for about a year in business and about $20,000 a month in deposits. If you're not there yet, apply anyway, because some funders work with newer or smaller businesses and we'll tell you what's realistic.
If you already have an offer in hand, send it to us through our beat-my-offer page and we'll shop it to other funders and show the replies in the same format. Our walkthrough of how we beat an existing MCA offer explains what we read on your offer letter first.
To see your own offers side by side, start the short application or call us at (818) 351-0225.
Questions about comparing business loan offers
How do you compare business loan offers?
Write each offer as the money you receive after fees, the total payback, the cost in dollars, the payment and its frequency, and the term, then check each payment against a slow week of deposits and read the prepayment, collateral, guarantee and renewal terms.
How do I compare business loan rates when one offer uses a factor rate?
Turn both offers into dollars, so a factor rate of 1.30 on $100,000 becomes $130,000 of total payback and an example 10% three-year loan of $100,000 becomes about $116,162 of payments, then compare the cost, payment and term.
Is the offer with the lowest cost always the best one?
No, because the lowest cost helps only when the money arrives in time, you qualify for it and the payment fits your deposits, so an offer that costs more but funds in one to two business days can fit an urgent need that earns more than it costs.
What should a business funding offer show in writing?
An offer should show the amount funded, any fees taken at funding, the total payback, the payment and its frequency, the term, and what you would owe if you paid early, and in New York, California and Virginia many offers must come with a standard disclosure form that lists most of them.
Does comparing offers through a broker hurt my credit?
Getting matched with offers through us does not need a hard credit pull, because most funders prequalify from bank statements and a soft pull, and if a funder needs a hard pull in final underwriting you will know before it happens.
