Key takeaways
- Compare total dollars, not just the advertised rate
- Normalize payment timing before comparing offers
- Model the return the capital must produce
Start with total repayment
The clearest first comparison is the cash received versus the full amount the business is obligated to repay. Include origination, documentation, draw, closing, and other required fees.
Document the assumptions behind this part of the decision and compare them against the actual financing agreement. Terms, eligibility, and legal treatment vary by provider and product.
Account for time
A cost paid over six months is different from the same cost paid over three years. Review the expected term, amortization, and whether the agreement can accelerate repayment.
Document the assumptions behind this part of the decision and compare them against the actual financing agreement. Terms, eligibility, and legal treatment vary by provider and product.
Model cash-flow pressure
Daily and weekly payments can affect operations differently than monthly payments even when total cost is similar. Test the obligation against both average and slower revenue periods.
Document the assumptions behind this part of the decision and compare them against the actual financing agreement. Terms, eligibility, and legal treatment vary by provider and product.
Measure the business return
Capital should have a defined job. Estimate incremental gross profit, timing, execution risk, and a conservative downside case before deciding whether the opportunity justifies the cost.
Document the assumptions behind this part of the decision and compare them against the actual financing agreement. Terms, eligibility, and legal treatment vary by provider and product.
Important
This guide is educational and does not provide financial, legal, tax, or accounting advice. SourcePoint is a marketplace, not a direct lender. Review provider-specific terms and seek qualified advice where appropriate.
Frequently asked questions
What is a factor rate?
A factor rate is a multiplier used to calculate total payback. It is not the same as an annual percentage rate and should be evaluated with the expected repayment period and fees.
Does the lowest payment mean the lowest cost?
No. A lower payment may result from a longer term and a higher total repayment. Compare payment affordability and lifetime cost separately.