Before signing a business funding offer, ask for the total amount you will repay or deliver, every fee including any deducted at funding, how and how often payments are taken, the prepayment terms, the collateral, liens and personal guarantees, and what counts as a default. Get answers in writing. Rockstone Lending, a small-business funding broker in Yuma, Arizona, talks owners through offers: (928) 436-5545.
Cost: what will this really cost?
| Ask | Why it matters | Where to look |
|---|---|---|
| What is the total I will repay, or for an MCA deliver, over the whole agreement? | The payment amount alone hides the cost; the total does not | The cost summary or payment schedule |
| What will actually land in my account? | Fees deducted at funding mean you receive less than you owe | The fee list and the disbursement section |
| Is there an APR? If not, can you give me one, or the total cost and every fee? | It puts loans with different fees on the same footing | The cost section; ask in writing if it is missing |
| Is interest charged on the declining balance, or is the total cost fixed at signing? | It decides whether paying early saves anything | The interest or pricing clause |
| For an MCA: what are the purchase price, the purchased amount and the factor rate? | The gap between the first two is the cost of the advance | The first page of the MCA agreement |
Put the numbers through the business loan calculator or the MCA cost calculator to check the arithmetic. If a term is unfamiliar, the business funding glossary defines it.
Payments: how, how often and what if sales drop
- How much is each payment, and how often is it taken? Daily or weekly debits feel very different from one monthly payment, even when the totals match.
- How is it collected? Automatic debit from your bank account, a split of card settlements, or an invoice you pay.
- When does the first payment come out? Some agreements start collecting right away, before the money has done its job.
- What happens if sales drop? Loan payments generally stay fixed. A merchant cash advance is not a loan; ask whether the agreement includes reconciliation and how you request it.
Paying early
- Can I pay this off early, and is there a prepayment fee?
- Will paying early actually reduce what I owe? On an amortizing loan it usually reduces interest. Where the total cost is fixed at signing, paying early saves little unless the agreement offers a discount.
- How do I get a payoff figure, and how long is it good for?
The prepayment or early-payoff clause has the answer. If the offer is silent, ask before you sign, not after.
Security, guarantees and other promises
- What collateral secures this? One asset, or all business assets through a blanket lien? See how collateral and UCC filings work.
- Will a UCC financing statement be filed? And will it be terminated when you are paid off?
- Is there a personal guarantee? Limited or unlimited, joint and several, continuing? Does my spouse need to sign? Read what a personal guarantee commits you to.
- Does the agreement include a confession of judgment or similar clause? If so, have an attorney review it first.
- What covenants apply? Reporting duties, financial ratios, limits on other financing, restrictions on changing bank accounts or selling assets.
Default: what counts, and what happens then
- What counts as a default? A missed payment, certainly, but agreements often add broken covenants, a default on other debt, a change of ownership or a material change in the business.
- What can the lender or funder do then? Demand the whole remaining balance at once (acceleration), add fees, act against collateral and pursue guarantors. The remedies section lists them.
- Is there a grace period or notice before a default is declared?
- For an MCA: how is a slowdown in sales treated, compared with a breach of the agreement?
These are the clauses owners most often skip and later wish they had read. Ask the lender or funder to explain them in writing.
Who you are dealing with
- What is the legal name of the lender, lessor or funder? It should be the name on the agreement you sign.
- Is this a loan, a lease or a merchant cash advance? A merchant cash advance is not a loan. The answer changes how cost, payments and default work; see merchant cash advance vs. loan.
- Is anyone asking for a fee before a loan is made? Arizona requires anyone who acts as an advance fee loan broker to register with the state (A.R.S. 6-1302). Be cautious with up-front fee requests, and ask what the fee is for and whether it is refundable.
Practical steps before signing
- Get every answer in writing, and keep a copy of the full agreement, not only the signature page.
- Compare offers on the same basis: total cost against money received, over the same period.
- Take the time to read it. Pressure to sign before you have read the agreement is a reason to slow down.
- Have your accountant look at the cost and cash-flow effect, and your attorney at guarantees, security and default terms.
- Never sign a blank or incomplete document.
How Rockstone Lending helps
Rockstone Lending connects you with lending partners; partners make credit decisions and set rates and terms. When a partner makes an offer, the terms are the partner's and the decision is yours. We can walk through an offer with you, point out the sections above and help you put the questions to the partner, but we don't give legal or tax advice. See how the process works or start an application.
By Rockstone Lending · Updated
