Cost terms: interest, APR and factor rate
Interest, APR and factor rate are three ways to price money. Only APR is built to compare offers of different lengths, and a factor rate must be converted before you compare it with anything.
Interest rate is the yearly percentage charged on the balance. APR adds certain fees and spreads the cost over a year, so it is the better yardstick. A factor rate is a multiplier, such as 1.2, applied once to the amount funded. A $50,000 advance at a 1.2 factor means $60,000 repaid, whether you take 4 months or 12.
Because a factor rate does not shrink as you pay down the balance, its effective annual cost is usually higher than the number suggests. Read how APR is calculated and how factor rates work before you compare offers.
Structure terms: term, draw and repayment
Term is how long you have to repay. Draw period and repayment period apply to lines of credit, and amortization describes how each payment splits between principal and interest.
Term is the repayment length, from a few months to many years. Amortization is the schedule that splits each payment between principal and interest. A draw is money you pull from a line of credit, and the draw period is how long you may keep borrowing before repayment begins. See draw period vs. repayment period for the details.
Payment frequency matters too. Daily or weekly payments pull cash out faster than one monthly payment, even when the total is the same. Our guide to daily payment to monthly equivalent shows how to translate them.
Security terms: collateral, lien and personal guarantee
Collateral is an asset that backs the funding, a lien is the funder's legal claim on it, and a personal guarantee makes you personally responsible if the business cannot repay.
Collateral can be equipment, inventory, receivables or real estate. A lien is the recorded claim against it, and a blanket lien can cover most business assets. A UCC filing is how that claim is made public. A personal guarantee extends responsibility to you as an individual.
Unsecured products skip specific collateral but often still ask for a guarantee. Learn more in everything about collateral and personal guarantees.
Qualification terms: revenue, time in business and credit
Funders look at monthly revenue, time in business, credit score and bank balances. Each term describes a test your file must pass, and the tests differ by product.
Time in business is how long you have operated. Monthly revenue is deposits into the business account. FICO is the personal credit score most funders review. Debt service coverage compares your cash flow with your total debt payments. A soft pull checks credit without affecting your score, while a hard inquiry can lower it slightly.
ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ in monthly revenue, with a soft credit pull to apply.
Terms that quietly add cost
Origination fees, prepayment penalties, renewal fees and holdbacks all raise the real price of funding. Ask for each one by name before you sign.
Look for these in every offer:
- Origination fee: charged up front, often taken from the amount you receive.
- Prepayment terms: some offers charge the full cost even if you pay early.
- Holdback or split: a share of daily sales sent to the funder.
- Covenants: rules you must follow, such as keeping a minimum balance.
Add every fee to the total repayment, then divide by the amount you actually receive. Our total cost worksheet walks through it.
A quick reading routine for any offer
Read every offer in the same order each time: amount, total repayment, term, payment frequency, fees, then security. A fixed routine keeps a persuasive salesperson from steering you.
Write the six items on a single sheet. If any one is missing from the paperwork, ask for it in writing. Then convert the payments to a monthly figure and compare with your monthly revenue. As a rough guide many owners keep total debt payments to a manageable share of sales; our guide on how much revenue can go to loan payments helps you pick a limit. Do not sign anything you could not explain to a friend in two minutes.
Putting the terms to work on a real offer
Turn any offer into four numbers: amount received, total repayment, payback period and monthly-equivalent payment. Then check them against what the money will earn.
Here is an illustrative example. An offer funds $40,000, costs $4,800 in total, and repays over 8 months. You receive $40,000, repay $44,800, and the monthly equivalent is $5,600. If the equipment or inventory it buys adds $9,000 of profit across that period, the math works. If it adds $3,000, it does not.
That is how ROI Funder approaches every file: start from what the money produces, then show the true cost and payback before you sign. Review our guide to which funding fits or apply in a few minutes.
Frequently asked questions
What is the difference between APR and a factor rate?
APR is an annualized cost that lets you compare offers of different lengths. A factor rate is a one-time multiplier on the amount funded, so it must be converted before comparing.
What does collateral mean in a business loan?
Collateral is an asset, such as equipment or inventory, that a funder can claim if the funding is not repaid. Some products need none.
Does applying with ROI Funder hurt my credit score?
No. Applying uses a soft credit pull, which does not affect your score, and you have no obligation to accept an offer.
Which term should I check first on any offer?
Total repayment. It includes interest, fees and any factor-rate cost, and it tells you what the money really costs.